Driven by its mission to protect life, Axon Enterprise (NASDAQ: AXON) has two main product lines: taser and software and sensors. Originally known for its taser product approach, Axon has done a tremendous job transforming into a fast growing software as a service (SaaS) business. This transformation has moved the company’s cloud offering to the minds of investors, as the software portion of the software and sensors segment has grown 57% annually over the past five years. Now, seen as the core of the company’s ecosystem, Axon Cloud ultimately allows for the full use of all of the company’s devices by adding data, tests, records, and more. for your customers in real time.
Despite having seen its shares rise above 4,000% in the last decade, Axon Enterprise still has a lot to offer investors with its growing subscription packages and its fascinating growth option.
Focus on recurring revenue
Despite having many product-based offerings, including tasers, body cameras and even drones, Axon is fast becoming a successful SaaS case, with 73% of its 2020 revenue coming from recurring packages. This percentage has gone from 34% since 2016, which is important as this recurring revenue is incredibly sticky and generates higher gross margins for Axon. In fact, the company’s cloud segment provides a massive gross margin of 77%, compared to its overall gross margin of 63%.
In addition, Axon’s 119% net dollar retention makes it clear that once their customers purchase a product package, they constantly update their subscription to use more of the cloud features. These features range from basic options like video camera storage to evidence.com and basic data management, to complex solutions such as live video streaming or virtual reality training for officers. . In general terms, net dollar retention compares the SaaS company’s loss of customers or loss of customers, compared to its top-selling, updated, or additional products. Of course, a figure above 100% implies business expansion, so the Axon rate of 119% highlights the minimum number of customers and the successful sale of services so far. Overall, I think Axon Cloud’s offerings are essential for most customers, as they want full functionality for their products, allowing the company to subscribe to agencies for mutually beneficial five- and ten-year subscription packages. .
In addition to the stability of these recurring revenues, Axon is still at the beginning of its long-term growth potential.
Optionally offering growth to investors in two major ways: internationally and through product expansion, Axon wants to continue to build on the 55% year-over-year revenue growth it reported for the second quarter. Internationally, the company experienced even higher revenue growth of 60% year-on-year, however, it was another statistic that could have stolen the program. As Rick Smith explained during the second quarter earnings call, “international reserves, which are our indicator of the future, have almost tripled.” It currently accounts for only 25% of global revenue, I hope to see a significant jump in international revenue over the next few years thanks to this large increase in reserves.
When it comes to product expansion, Axon’s optionality seems to be gaining strength as it continues to build its public safety ecosystem. Whether it’s real-time shipping operations, data and record maintenance, drone products, or its recently launched augmented and virtual reality training, Axon is testing a variety of new product ideas with its customers. In addition to this product option, the company is committed to diversifying its customer base as it aims to expand into fires and emergencies, corrections and even companies with its range of products and services. While it’s too early to know how many of these new growth pathways will work, it’s a welcome sight, especially given Axon’s inventive past.
The next step for an investor
Thanks to the stability of Axon’s recurring revenue growth, it should be able to continue taking some interesting photos in the new growth areas, making it an innovative company to keep looking at. As we move forward, I will look at the company’s net dollar retention rate and the company’s gross profit margin. Currently, with 119% and 63%, respectively, I believe these two metrics will highlight whether Axon’s ongoing efforts to diversify both its product offering and its customer base are consolidating or not.
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