Shares of Axon Enterprise (AXON 3.43%) were soaring again recently after the leading law enforcement technology company delivered another strong earnings report.
Axon, which makes TASER stun guns and body cameras, posted its third straight year with revenue growth of greater than 30%.
In the fourth quarter, revenue jumped 34% to $575.1 million, beating the consensus of $566 million, and its margins continued to expand as it earned more money from its high-margin software business. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 56% to $142 million. Generally accepted accounting principles (GAAP) earnings per share of $1.67 topped estimates of $1.40.
While those numbers were impressive, looking beyond the headlines offers the best evidence for why Axon can continue to shine. Here are three reasons why the stock can keep climbing higher.
Image source: Axon.
1. The bookings pipeline is robust
Bookings are key for any software company, as they're a leading indicator of revenue. Software companies sell subscriptions, booking contracts up front, and then record the resulting revenue monthly over the length of the contract.
In 2024, Axon recorded more than $5 billion in annual bookings, bringing contracted bookings to $10.1 billion. It brought in revenue of $2.1 billion in 2024, so its pipeline of revenue represents nearly five years' worth of total revenue right now, which is huge, and shows that the company has booked high-value, long-term contracts.
Axon is a combined hardware and software business. It now has annual recurring revenue of $1 billion, which is primarily from its cloud products, meaning that its bookings backlog represents 10 years of recurring revenue at the current level. That's a great indicator of future growth and future demand.
2. It's expanding beyond law enforcement
Axon's strength in law enforcement is clear as it's built a solid customer base across state and local law enforcement, federal agencies, and international law enforcement.
However, the company sees an opportunity to expand beyond law enforcement into the private sector, tapping into the enterprise market.
In 2024, the company said it recorded its largest deal ever, coming from an enterprise customer. Axon didn't name the customer, but it did say on the earnings call that it was a global logistics provider. That could be a company like FedEx or UPS looking for body cameras to give its drivers an easy way to record package drop-offs and keep a record of any other incident the driver might face in the course of their day. Axon touted the interest from the enterprise sector in using its products for frontline workers.
That deal shows the opportunity that Axon has in tapping untraditional markets as the utility of body cameras goes beyond law enforcement. For instance, security companies would likely benefit from them, as would other drivers and transportation workers, and many others who interact with the general public and would like to have a digital record in case there's a need for it.
NASDAQ: AXON
Key Data Points
3. The addressable market keeps expanding
Axon's mission is to protect life. It's a great mission statement as it clearly states the company's purpose and prevents the company from being too focused on a single product like Taser.
It leaves room for the company to expand into new products, and it's done exactly that with tools like its new artificial intelligence (AI) features such as Draft One, which auto-transcribes footage for body cameras to make police reports.
Axon estimates its addressable market every year and now believes it operates in a total addressable market (TAM) of $129 billion, based on expanding opportunities in international governments, the enterprise market, and with AI.
Axon has only penetrated 2% of that market currently, and even in U.S. state and local governments, it believes its TAM penetration is just 15%, indicating a large growth opportunity still remains.
Axon will continue to innovate with new technology. Costs for things like cloud storage and AI will likely continue to come down. The company will be able to solve even more problems for its customers in the future as it brings new companies into the fold through acquisitions and rolls out new technologies.
The future is still bright for Axon Enterprise, and the stock looks like a great buy after pulling back from its peak.
