Axon Enterprise Inc.'s (NASDAQ:AXON) revenue has nearly tripled over the past five years as body camera and taser use has increased in law enforcement agencies around the world. With arguably the best technology and infrastructure in the business, Axon is the clear market share leader in the industry today. 

What's incredible about Axon's business is that growth is just beginning. Not only can the company increase existing product sales by reaching more markets, it will also be able to expand into new products as well. If everything goes right, Axon could see an entire decade of strong growth ahead.

Law enforcement worker using Axon's cloud system on a computer

Image source: Axon Enterprise.

New markets are key

As of the end of the second quarter of 2018, Axon had 305,200 cumulative Axon Cloud "seats" booked around the world, an impressive feat for a product that's only a few years old. Seats means users. Management says this is just scratching the surface of the 1 million potential U.S. customers and another 1 million internationally. Axon could conceivably grow its customer base more than six times without any new products just by expanding into new markets and getting more penetration in existing markets. 

Growth by expanding existing products will take time, but there's a long growth runway even before we start accounting for new products. 

New products are starting to impact Axon

While the Axon Body camera and cloud platform create a great foundation, they're just the start of Axon's product pipeline. Axon Fleet was introduced earlier this year to improve penetration in the law enforcement fleet market. The product works seamlessly with Axon Body and and can even offload content wirelessly if law enforcement agencies install a secure wireless network. There's also a holster product that automatically turns on a body camera if a weapon is drawn. 

The game-changer for Axon could be a records management system that's in testing today and is expected to launch in 2019. Records management will allow officers to use body cameras to share crime reports, video record witness statements, and even create statement transcripts. The product could become a core system used by law enforcement officers every day, making Axon a key service provider to law enforcement agencies. 

Axon's financial power is growing

Expanding markets and introducing new products will help Axon's financials, but there's reason to believe pricing power will only grow over time. The beauty of Axon's financial model today is that most new body cameras are sold on a long-term contract model that bundles cloud services with the camera. These bookings generate revenue over multiple years. At the end of the second quarter of 2018, annualized recurring revenue for body cameras and cloud services was $92.7 million and the segment's gross margin was 52.3%, including 77.8% on cloud services. Recurring revenue will continue to grow as more customers are added, and margins should expand, too. 

As new products like Axon Fleet and records management are launched, customers will be locked in to Axon's products, which should allow the company to raise prices and increase margins in the long term. On top of that, the company has very little competition in products and services built for law enforcement. Earlier this year, Axon bought Vievu, its biggest competitor in body cameras. This expands the number of markets where Axon can compete for contracts and reduces the chance it will be competing on price alone. 

Scratching the surface of its potential

The market Axon thinks it can reach with the products it has and is developing is worth $6.5 billion, so its $400 million of annualized revenue as of the most recent quarter suggests the company has a lot of room for growth. I think Axon Records could be the game-changer that ingrains the company in law enforcement worldwide, driving a new wave of growth that could last another decade. That's why Axon has a bright future.

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