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3Q25 Update.

Axon reported 3Q25 earnings Tuesday and the stock closed -9% after initially dropping -20%. It faced continued pressure though and is now down -16% at $600 from its pre-earnings price of $720.

This quarter marked the 15^th consecutive quarter of 25%+ growth and the 7^th quarter of 30%+ growth. Total revenue rose +31% y/y to $711mn, a slight deceleration from +33% y/y in the prior quarter. Net revenue retention remained robust at 124%, consistent with last quarter and marking the company’s 21^st consecutive quarter over 120%.

Breaking down their $711mn total revenue by segment, Software & Service Segment accelerated again to +41% y/y, a 200 bps increase from last quarter’s growth rate of +39%, driven by adoption of premium software features and an expanding user base. However, the Connected Devices segment slowed, growing +24% y/y to $405mn, a -500bps contraction from the prior quarter. Within the segment, TASER revenues grew +17%, Personal Sensors rose +20%, and Platform Solutions increased +71%. Each category saw a slight contraction in growth from the prior quarter, but growth remained steady.

With continued success they are seeing across their ecosystem, they’re raising their revenue guidance for the remaining of the year. They expect 4Q revenue between $750-$755mn, and full year revenue of $2.74bn up from $2.65-2.73bn, representing an annual revenue growth rate of ~31%.

Turning to profitability, total gross margins held steady at 60%. Product gross margins improved +100 basis points to 50%, however offsetting this was Software & Services margins contracting -200bps to 74% from 76%. CFO Brittany Bagley noted that this was the first full quarter to feel the effect of tariffs, primarily in the Connected Devices segment, though production shifts to India and Vietnam helped offset some of the pressure.

Axon continues to increase their R&D spend as they build out the TASER 10 and innovate new product offerings. In the quarter, R&D rose +54% y/y, but despite this increase, R&D is still running at 24% of revenues.

Despite strong revenue growth, their elevated operating expenses, high SBC, and slow cash conversion cycle means that revenues haven’t been converting to cash. After backing out SBC, they burned $113mn in 3Q.

Business Commentary.

A major focus of the quarter was Axon’s expansion into the 911 call center space through the acquisitions of Prepared and Carbyne, valued at $640mn and $625mn respectively. These deals form the foundation of “Axon 911,” a new integrated offering designed to modernize emergency response infrastructure. Prepared functions as an AI assistant that streamlines data collection for operators, while Carbyne provides a cloud-native system for call routing and management. The strategy mirrors Axon’s playbook with Evidence.com, moving agencies from legacy on-premise systems to the cloud, but this time for emergency dispatch centers. CEO Rick Smith emphasized that as AI systems become more central to incident response, traditional CAD (computer-aided dispatch) software will become less relevant. This is an important area that is in dire need of a technological upgrade as legacy systems cannot capture much data and lack the ability to easily coordinate between different parties. As they deal in literal life and death situations, saving time and improving information flow can literally be a life saver.

What was interesting to note was about how they view M&A at this moment. They’re not buying revenue or a mature business and working out the synergies, they’re “buying opportunity” as CFO Brittany Bagley stated, where these are early stage businesses that can pull into their ecosystem and integrate well and accelerate other offerings.

The overarching goal of Axon 911 is to take the 911 call and improve the pass off process. Call centers still run on legacy systems that are inefficient and take a long time from call to dispatching. If they can get information on dispatch to the emergency faster than the legacy system due to the integrated ecosystem, then this will improve the ability for law enforcement to respond to a situation. Of course for Axon, this is just another way to lock-in users to Axon’s ecosystem.  Adding the emergency call and dispatch allows them to move even closer to being a holistic solution, wedging out competitors like Motorola who still have a notable position here by pairing it with documentation and filing with Evidence.com. This is where Axon sees how they can disrupt this space with Prepared and Carbyne. When a call comes in, responders are dispatched faster due to the Axon’s ecosystem where each enables one another. There is also the benefit of all of the data being in one place, which is important in prosecution because missing evidence can lead to a mistrial.

Customer adoption remains strong and Axon is continuing to see success in upselling existing clients. As mentioned in our last business update, they have moved revenue per user from $300 to $600 as they integrate new offerings and upsell their user base, and in 3Q they noted that they broke through that threshold with state and local agencies. Rick Smith noted that prior concerns about overreliance on Axon are fading, as customers increasingly view the company’s products as reliable and indispensable, drawing a comparison to Apple’s “it just works” philosophy.

Still, pricing has always been an issue for Axon for new prospects and against competitors, which is why they package features and other offering to make it more appealing to customers. In an AlphaSense expert call interview, a former director of customer success at Axon noted that there are 2 main reasons why a customer would not choose Axon: 1) fear of total dependence on one provider and 2) price.

Nevertheless, once a customer gets locked in, it’s very hard and expensive for them to switch because all of their evidence is housed in Evidence.com. If someone wanted to move vendors, they would have to successfully preserve the terabytes of data they had when they migrate to another vendor, which is costly and poses significant legal risks if data is lost.

Moving on to Enterprise market, enterprise growth is starting to take shape and finding product market fit.  In September, they released their second enterprise product called Axon Body Workforce (ABW) Mini. They expect to deploy new units in the U.S. and Canada in the 1H26. CEO Rick Smith drew parallels between the enterprise rollout and the early days of body camera adoption in law enforcement, highlighting similar product market fit dynamics.

Now if an incident does occur at an enterprise site like a retailer, staff doesn’t know you called 911 at that moment. As Rick Smiths notes below, now with Axon 911 and their suite of products, enterprise customers get real-time alerts to incidents. This connection to emergency response forces and the ability to alert other employees in the store is likely to be a key differentiator versus other body cam products.

Turning to drones, they noted that there is pent-up demand for Dedrone as major events such as the World Cup coming up and officials need to start investing in the infrastructure to mitigate such attacks. However, the problem is that in the United States, state and local police are not legally authorized to mitigate drones, but once laws are passed by Congress to allow state and local governments to mitigate drones, Axon should stand to benefit from that pent-up demand.

In an AlphaSense expert call, an Axon executive mentions that drones can be an effective use case for understaffed departments.

Internationally, Axon continues to build momentum, led by adoption of TASER 10 in Canada, Australia, and South America. The company also highlighted a nine-figure cloud deal in Europe, suggesting that cloud migration could unlock larger international contracts over time. Europe has long resist the migration to the cloud because of local data storage rules, but more recently this has started to shift. Axon’s success should continue as the only reason why Axon would lose a deal internationally would be if a competitor had better relationships with the local agency, as no competitor has an integrated and proven offering like them. The TASER 10 also has been an important wedge to gain business as most law enforcement officers do not carry guns and a TASER 10 is the best non-lethal alternative. Prior versions of the TASER didn’t have the same range and number of shots, making them less attractive to local law enforcement agencies. This changed with the TASER 10 though.

Finally, AI bookings continue to be a growing piece of bookings. They noted that AI bookings contributed 10% of state and local bookings in the quarter. In the same expert call interview, the expert stated that with Evidence.com, Draft One, and all of the other AI features Axon is pushing into, it helps entrench Axon’s position in controlling the data even more.

Overall, Axon is executing well, but their high expenses and SBC has meant that they are earning zero profits. This isn’t exactly anything new though as they have had small losses since 4Q24. While we are hesitate to attribute any variables to a stock’s movement, there is little in the quarter to suggest a change in the thesis or even a negative business development. It seems most likely it is a case of the stock having overextended itself I in terms of valuation, but to better understand what the market is pricing in, we turn to our reverse DCF below.

Valuation.

Currently, at $600 a share, Axon trades at 18x LTM revenues based on a $47bn market cap. If we conservatively assume steady-state margins of 25%, that brings them to a 91x mature NOPAT. At that multiple, it would take ~5 years of 30% growth for Axon to trade at a market multiple.

We decided to keep our revenue and mature margin assumptions the same. Please see our original research report to see our rationale. Of course, it is up to the investor to decide what they are comfortable assuming and whether the risk is worth the upside.

Below we see the reverse DCF outputs at the current market cap of $47bn. Despite the decline in stock price, an investor would have to assume Axon will continue to grow revenues >25% and earn 30% margins to earn what the stock market has historically. While their growth has continued to be exceptionally strong, the question is what is an investor comfortable assuming? While it is impressive they have grown 30%+ for 7 quarters, each investor has to decide how comfortable they are assuming that continues, because even at that rate it will take 28 more quarters to reach a market multiple. At 18x sales there is certainly a lot of growth priced into the stock, so the question becomes can they not just continue to deliver, but can they outexecute expectations for an investor to receive a truly outsized return. That will be for you to decide.

Below you can find some notables from the call.

Call Notes.

Axon 911

• Completed the acquisition of Prepared and signed an agreement to acquire Carbyne to create “Axon 911”
  • Prepared is an AI assistant to help call center operators collect information and data
  • Carbyne is a mission-critical cloud-native platform that helps call centers manage and route calls
  • “Prepared and Carbyne are powerfully complementary, prepared is a low-friction AI capability that can be rapidly installed in any communication center immediately giving call takers superpowers to speed through data collection, analysis and sharing. It can autonomously handle up to half of noncritical calls, freeing the human operators for true emergencies. ”
  • when you look at Prepared and Carbyne over the long term, we think there is a lot to disrupt in the 911 space and the synergy between those opportunities and all the downstream stuff with digital evidence and prosecution, I think that workflow from end to end is going to be the long-term value that we add to public safety.

Connected Devices

• TASER revenues grew +17% y/y to $238mn led by TASER 10, Personal Sensors grew +20% y/y to $107mn driven by AXON Body 4, and Platform Solutions grew +71% y/y to $61mn driven by counter drone, virtual reality and fleet.
  • Introduced ABW Mini, their second enterprise body camera

Bookings

• Bookings grew +39% y/y to $11.4bn
  • 4q to have large increase in bookings
• Corrections outperforming, contributed 2 of the top 10 deals in 3Q, with ytd bookings up more than 2x from 2025

Customer Adoption

• More deals now include the full breadth of the portfolio. Broke the $600 per user per month level threshold this quarter with state and local base

AI

• AI bookings to contribute over 10% of US state and local bookings in 2025

International

• International also performing well, won a 9-figure cloud deal in Europe. They believe their cloud offerings will bring more larger deals in the international segment in the coming years. Cloud offerings and TASER 10 are leading the charge for Europe adoption
  • Consistent bookings in Canada, Australia, and South America

Enterprise Finding Product Market Fit

• There was a moment in time our first body camera in policing didn’t hit the product market fit, Axon Pro. We got out — got a couple of key customers to prove the concept. Then Axon Flex made it my smaller, but really was the introduction of Axon Body 1 that hit law enforcement and began to scale. I would say enterprise, the the existing body cameras are seeing more as police body cameras. Yes, we have the Axon body workforce, which is really sort of a minor reskin of [indiscernible] 3 compared to what we’ve now done. I would say this is the moment where we think — well, we know we’ve got product market fit because we jointly develop this with our key customers. So I think this is we’re really positioned now and at the moment that it takes off. And we’re seeing, by the way, the early proof points, both statistically very significant reductions in assault time on staff in addition to powerful anecdotes, individual stories of very dangerous people seeing they’re being recorded, throwing down whatever they were going to steal an just storming out rather than causing trouble.
• Today, if you call 911 in a retailer like a Walmart, the people in the store have no idea, you’ve called 911. They’re completely unaware that there might be some incident happening. When we tie together prepared Carbyne, Fusus, and our enterprise customers, we can begin to have them collaborate in real time so that they’re getting alerts as well and being aware, hey, if there’s a 911 call in our parking lot, we’re going to need to engage with that. We’re in the store as well. So again, this is where each of these pieces all sort of build on each other into 1 highly integrated nervous system

Competition

• We’re not — we’re focused on what we’re doing at Axon with our body camera business. There’s a lot of chatter out there in the market. People like to talk about us, we’re focused on our customers. And we see absolutely no headwinds in that way with any concerns from our customers about our body cameras. We make the best products in the market. Other companies can pick out little things on the edges where they think there’s some Aha! moment, our customers don’t see that. And so we’re going to keep executing. We’re going to keep focusing on our customer. We’re going to keep out innovating ourselves, and we’re going to keep delivering world-class technology to our customers.

Wallet Share

• Maybe 5, 6 years ago, we were having some conversations with customers about them having some concern about share of wallet, like, hey, are we too dependent like on Axon just because you’re taking up a growing portion of our tech budget. Those conversations have largely disappeared. What I’m hearing from customers now is you know what, when we deploy something with Axon, whether it’s body cameras or records, it just works.

Drones

• Challenges of state and local in adopting drones but there is pent-up demand due to events like the World Cup, but once Congress passes laws, Dedrone will benefit

Tariffs:

• “All of the impact from tariffs is obviously hitting the Connected Devices business overall. This was the first quarter that we had a full quarter of impact from tariffs. So as we look at the year-over-year step down that really is attributable to tariffs. As long as tariffs stay in place, I view that as sort of a onetime adjustment. So now that’s baked into the gross margins.”

Guidance

• Raising guidance for the remaining of the year. They expect 4Q revenue between $750-$755mn, and full year revenue of $2.74bn up from $2.65-2.73bn.
• Expects software and services to be a higher-than-average growth rates

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*At the time of this writing, one or more contributors to this report has a position in AXON. Furthermore, accounts one or more contributors advise on may also have a position in AXON. This may change without notice.