On Tuesday, TASER International (NASDAQ: TASR) announced its latest megasale of AXON on-body cameras for the law enforcement market -- 1,425 AXONs, soon to ship out to the Charlotte-Mecklenburg Police Department in North Carolina, complete with three to five years' worth of EVIDENCE.com data storage service and subscriptions to the TASER Assurance Plan (a warranty and upgrades program).
The stock promptly dropped 2%.
Now, I'm just speculating here, but it seems to me that this is not at all what TASER had in mind when it was drafting that press release. In addition to the North Carolina news in particular, TASER also confirmed for its shareholders that it's received "large" orders (31 units and up) from police departments in Arizona, California, Georgia, Indiana, Pennsylvania, and Texas.
Adding those to the 1,425 N.C. units brings the grand total up to 1,951 AXON units, including both "body" and "flex" models. And with smaller orders (apparently too small to break out) added in, the company says it's sold "more than 2,000 AXON Cameras" in March alone.
2,000 times what?
According to TASER's official website, the company charges $599 per unit for an AXON "flex" (where the camera lens can be attached to a sunglasses frame, for example) and $399 for an AXON "body" (where the lens is integral to the camera body, and clips to an officer's shirt.
For police departments buying both models, TASER didn't break out exactly how many of each, so let's split the difference and estimate 2,000-plus AXON sales at $499 each -- which makes them worth about $1 million to TASER. That's about 0.44% of TASER's annual revenue, according to data from S&P Capital IQ.
If that's TASER's "big announcement" for the entire month of March, therefore, it seems kind of underwhelming. You can understand why investors are feeling deflated by the news.
But that's the wrong way to look at this.
The real power of AXON
The key thing to understand about AXON, and TASER, is this: It's not about the hardware. It's all about the software -- and in particular, the recurring revenues that will roll in for TASER, year after year, every year after they sell a cop a TASER.
Here's how it works: Like the lens on an AXON camera, AXON itself is just the conduit for TASER's real money-making. Every bit of data generated when AXON records a video is data that the police may want to store, and more important, pay TASER to store on its EVIDENCE.com storage service.
Now, one year ago, when we first started getting good intel on what AXON meant to TASER, the company was charging $10 a month for this service -- $120 a year, or about 24% on top of the cost of the AXON itself. Already this year, TASER has hiked that to $15 a month (a 50% bump). And according to the company's website, TASER is now offering even pricier plans:
- $25 a month for a "Standard" plan
- $39 for a "Pro"
- $55 for EVIDENCE.com "Ultimate" (starting price, and including camera upgrades every 2.5 years)
- $79 for Ultimate plus unlimited storage.
- $99 for all the above, plus upgrades to actual TASER Tasers -- the stun guns that were the company's initial claim to fame.
The upshot for investors
You see how this all adds up? Pretty soon, each AXON camera that TASER sells could be raking in up to $1,200 a year with the top-of-the-line plan -- more than twice the cost of the camera itself. And these are revenues that a police department will pay TASER, year-in and year-out, to use the device as it's intended -- to store and retain videos of police encounters with the public, for use as evidence in criminal trials (and civil lawsuits against the police) that may arise days, months, or years after the video was initially shot.
This is the reason TASER shares are currently pegged for 30% earnings growth over the next five years. It's the reason TASER stock is selling for 65 times earnings. And it's the reason that even the announcement of a tiny sale representing just 0.44% of what TASER brings in within a year is really big news for TASER.