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Violent encounters between police and US residents claim about 2,000 lives a year. Axon Enterprise claims it has a way to reduce the frequency of such tragedies: by selling “neuromuscular incapacitation” devices to law enforcement. Readers might know these by their brand name: tasers. Thanks to their growing use, Axon has become one of the better performing stocks on the US market.
Shares in the Arizona-based group are up more than sevenfold since the start of 2020, vastly outpacing companies such as Meta Platforms and Apple, and giving Axon a market capitalisation of $62bn. Other stocks linked to law and order have also risen since Donald Trump’s election, such as private prison operator Geo Group and surveillance software maker Palantir. Axon now trades at more than 20 times estimated revenue for this year, its top line growing at 30 per cent annually.
That multiple is partly justified by a pivot from hardware to software. Axon also makes police body cameras that deliver video feeds back to the precinct. Some of its subscriptions create automated transcripts of encounters between police and citizens, cutting time spent on paperwork. Non-lethal force and video monitoring, it says, together contribute to more accountable law enforcement.
Software subscriptions are often seen as “sticky” — and therefore attract high valuations from investors — because customers tend to be loath to cancel or switch suppliers, even, in this case, with stretched police budgets and the occasional call to “defund the police”. The company says its total addressable market — an aspirational measurement popular with growth companies — is about $130bn, or more than 40 times its revenue at present.
One challenge will be to secure a place in institutional portfolios, which means overcoming potential queasiness about a product which, after all, inflicts pain. Axon does have some elite credentials: its chief financial officer came from KKR; its revenue and product officers from Amazon. Its board includes Caitlin Kalinowski, a former Meta Platforms executive now building robots and hardware for OpenAI.
Still, there is work to do. In 2022, nine members of Axon’s artificial intelligence ethics board resigned after the company disregarded advice about piloting a “taser-equipped drone” initiative. And the hardware component of the business still remains important, and may be too edgy for some. Consider the “Taser 10” model equipped with a range of 45 feet, and 10 shots that can pierce “dense clothing”.
Axon’s gross margin of about 60 per cent shows there’s substantial profit to be had from providing innovative gadgets to law enforcement agencies. Last week’s US budget bill, which allocated $165bn to the Department of Homeland Security, shows how much there is at stake. For investors who can get comfortable with that — and with the fact that the company ultimately has limited control over how, and on whom, its tools are used in the field — Axon is undoubtedly a stock for the times.
sujeet.indap@ft.com
