- "Cincinnati Police Buys 1,050 Axon Body 2 Cameras"
- "Atlanta Buys 1,015 Axon Body Cameras"
- "Florida Fish and Wildlife Deploys 850 TASER X2 Smart Weapons"
- "El Paso County Sheriff Deploys 250 Axons and 393 TASERs"
Now what do these four headlines, all published by TASER International (NASDAQ:AAXN) over the past two weeks, tell you about how TASER's business is going?
Optimists -- the folks who have bid up TASER stock 28% over the past 52 weeks, will tell you they mean that TASER's business is booming. And to an extent, they're right. Last quarter, for example, TASER's sales exploded 26% higher.
Pessimists, on the other hand, may read between the lines of TASER's booming sales growth. When they do, they'll tell you that while TASER's overall sales are growing very nicely, much of this growth is being fueled by the explosive growth of TASER's Axon Body Camera business.
Digging into the numbers
Last quarter, Axon sales grew 49% year over year, which was nearly twice the speed of the company's overall sales growth, and more than twice the pace at which sales from TASER's higher-margin Taser -brand stun-gun business grew. On average, every Taser that TASER sells generates 70% gross margins for the company, while the faster-growing sales of Axon cameras yield only 42% margins.
And look at those four contracts again: The four contracts reported over the past two weeks show 2,315 total low-margin Axon units sold, but only 1,408 high-margin Taser stun guns.
It gets an investor to wondering: Is TASER's Taser market starting to get tapped out?
Exploring the market
It may be. Consider a few numbers that we crunched in our column two months ago, in which we examined the size of the U.S. market for police officers who might buy Taser stunguns. According to Department of Justice figures, across the more than 18,000 local, state, and federal law-enforcement agencies in the U.S., there are currently approximately 929,000 sworn law-enforcement officers "authorized to make arrests and carry firearms in the United States."
According to TASER's own figures, "more than 850,000 TASER weapons have been sold since 1994" to these "more than 18,000 law enforcement agencies." TASER itself boasts that its stun guns are now so "ubiquitous" in America that approximately 17,800 of the 18,250 law-enforcement agencies in the U.S. now keep Tasers in their arsenals.
Exploring the implications
So does this mean TASER is running out of police officers to buy its stun guns?
At first glance, it sure looks like it. At the department level, 97.5% of all law-enforcement agencies now field Taser stun guns. Moreover, 850,000 Tasers sold, divided among 929,000 officers, suggests 91.5% market penetration at an individual level. And that's assuming no sharing of weapons among officers.
These figures suggest that one more year of "20% sales growth" should suffice to achieve total market saturation of the Taser stun-gun market -- and put an end to TASER's growth.
Yet over the years, TASER has gone through multiple iterations of its eponymous stun gun. It stands to reason that a lot of those "850,000 TASER weapons" sold to date have been upgrades of and replacements sold to repeat customers. And if that's the case, then true market saturation may still be a way off.
Indeed, in the case of the Florida Fish and Wildlife Conservation Commission sale announced last week, TASER confirmed that the 850 X2 stun guns sold were "an upgrade of older TASER weapons." Likewise for the much larger Jacksonville Sheriff's office purchase of X26P stun guns back in June. That, too, was described as "an upgrade of 2,500 older TASER weapons."
Furthermore, TASER has recently begun emphasizing sales of stun guns via "TASER 60" contracts, which lock customers into five-year deals during which weapons are purchased via installment payments. Logically, once those contracts expire, TASER will use the opportunity to pitch upgrades for the by-then-antiquated stun guns that were originally sold.
The upshot for investors
From one perspective, the same numbers TASER boasts of to prove the "ubiquitous" popularity of its stun guns seem to foreshadow the end of sales for these weapons. In fact, though, through upgrades of existing weapons in the U.S., and expanded sales of these weapons abroad, I suspect TASER has years of growth ahead of it still.