Axon: 3Q25 Business Update
Can they outexecute their valuation?
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3Q25 Earnings.
Axon reported 3Q25 earnings Tuesday and the stock closed -9% after initially dropping -20%. It faced continued pressure though and is now down -18% at $590 from its pre-earnings price of $720.
This quarter marked the 15th consecutive quarter of 25%+ growth and the 7th 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 21st 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...
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The cash burn situation is what stands out most here. Burning $113mn in a quarter while growing 31% tells you that this growth model is capital intensive in ways that aren't sustainable at current valuations. Software accelerating to 41% is promising, but the Connected Devices slowdown combined with tariff pressures creates real margin risk. At this valution, they need flawless execution and the market's showing it doesn't believe they can deliver that consistently.