It's tempting to say things began going downhill for Axon Enterprise (NASDAQ:AAXN) in 2017 when it decided to change its name from TASER International. It took what was a widely known and well-respected brand and demoted it to secondary status while elevating a niche product to center stage.

Of course, it is Axon's cameras and evidence management systems that are the future for the company. It might be making most of its money today from its Taser electrical weapons, but the police body cams and digital evidence databases are where it will be making its money in the future.

Police officer entering info into Axon Enterprise Evidence.com database

Image source: Axon Enterprise.

An arrested development

While Axon has had a series of ups and downs this year, the first one that might have set the stage for what was to come was its loss of the body-cam contract with the New York Police Department.

Because body cams for police are hot-ticket items right now for police departments, the NYPD is the crown jewel for any provider because it's the largest police force in the country, and Axon lost out on the $6.4 million contract to smaller rival VieVu.

Axon cried foul when its rival got the contract, saying VieVu lowballed the initial bid, a charge that some anecdotal evidence suggested had some basis. While the initial order was for 1,000 cameras, Axon charged that VieVu offered its cameras at or below cost, and The Wall Street Journal subsequently quoted some police officials as saying they had to confirm the bid with VieVu because it was so low.

The city comptroller vowed to block the contract from going through, but the NYPD said it was purchasing the cameras anyway. Axon subsequently followed up by offering to supply all police departments in the country with free body cameras during a trial period, but the NYPD turned down that offer, too, saying it violated their procurement process.

Despite not winning over the NYPD, Axon Enterprise still finds its cameras accepted in major cities around the country and the world. The company reports more than 200,000 of its cameras have been deployed in 37 major cities in the U.S., the U.K., and Canada.

A police officer puts an Axon Enterprise TASER stun gun in a holster.

Image source: Axon Enterprise.

Set phasers to stun

Axon's next stumble came from its many recurring patent disputes it has with rivals such as Digital Ally and PhaZZer Electronics. In June, the latter won a second examination by the patent office of Axon's so-called 262 patent, which covers its X26 model stun gun that represents over 30% of weapons sales and 20% of total revenues.

The two had been going back and forth about the patent for years, with each side claiming decisive victories, but this time PhaZZer predicted the patent would be declared invalid.

A month later, though, Axon won a permanent injunction against PhaZZer from selling its own conductive-energy weapons or even giving them away, and the company is now insolvent. Two other companies were also put out of business by Axon's protection of its patents: Stinger Systems and Karbon Arms.

Police putting on Axon Enterprise body cameras

Image source: Axon Enterprise.

Return to sender

Axon's most recent stumble occurred just last month, when it ignored three separate requests from the SEC for information related to its revenue recognition policies. While it turns out the lack of response was due to an overzealous email spam filter, having an SEC inquiry publicly disclosed is never a good thing, and it needs to answer for why its backlog on the Axon 2 camera suddenly exploded higher, as well as its accounting procedures for its TASER 60 program, which some analysts see as problematic.

The reasoning is, Axon recognizes all the revenue up front from the five-year purchase agreements customers enter into with Axon but recognizes the warranty revenue over the life of the contract while deferring the commission costs of the sales over five years. Some see that as a very aggressive accounting treatment.

Axon Enterprise just reported third-quarter earnings, too, and while it beat top-line estimates, it came up way short on the bottom line. Revenue jumped 26% year over year to $90 million, but profit sank by 86% to only a penny per share, far below Wall Street's forecast of a nickel. Cameras and the Evidence.com segment continue to see strong growth, and even TASER sales are up 12% from last year, but the less than stellar result is sending shares lower, making it yet another stumble in 2017.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Axon Enterprise. The Motley Fool has a disclosure policy.