Will Higher Marketing Expenses Hurt AeroVironment Q3 Earnings?

Axon Enterprise, Inc. AXON reported better-than-expected fourth-quarter 2024 results on Tuesday. Earnings per share surpassed the Zacks Consensus Estimate by 36% and surged 84.1% year over year.

Total revenues of $575.1 million surpassed the consensus estimate of $566.1 million and increased 34% year over year. The fourth-quarter results benefited from solid momentum in its TASER and Software & Sensors segments.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

AXON has been reporting strong earnings results courtesy of solid financial and operational performance from both of its segments. The public safety technology solution provider surpassed expectations in each of the trailing four quarters, with an average earnings surprise of 21.6%.

Factors Contributing to Axon Stock’s Performance

Axon’s TASER segment is thriving on the back of strong demand for TASER devices and growing adoption of its virtual reality training solutions. Segmental revenues jumped 37.1% year over year to $221.2 million in the fourth quarter. The company continues to witness growing popularity for its next-generation TASER 10 devices, whose shipment began in first-quarter 2023. Also, growth in cartridge revenues, driven by higher adoption of the TASER products, has been driving the segment’s performance. In 2024, AXON shipped more than 200,000 TASER devices, 300,000 body cameras and 9 million cartridges.

The addition of new users and associated devices to the Axon network is aiding the Software & Sensors segment. Increased adoption of Axon Evidence and premium software offerings are driving Cloud and Services’ growth within the segment. Cloud and Services revenues climbed 40.6% to $230.3 million in the fourth quarter.

Axon introduced its next-generation body-worn camera, Axon Body 4, in April 2023. With upgraded features such as a bi-directional communications facility and a point-of-view camera module option, this body camera is generating significant demand, thus bolstering the segment’s growth. Shipment of this body camera began in June 2023 and the customer response has been impressive so far. Within the Software & Sensors segment, Sensors & Other revenues rose 17.5% to $123.6 million, supported by increased demand for Axon Body cameras.

The company’s investments in newer areas within the software business, like AI products, real-time operations, drones and robotics, bode well for growth. This, along with the strength in the TASER 10 device, led it to provide a bullish guidance. For 2025, Axon expects revenues to be in the band of $2.55-$2.65 billion, indicating growth of approximately 25% year over year. Adjusted EBITDA is expected to be in the range of $640-$670 million, implying an adjusted EBITDA margin of about 25%.

AXON remains focused on strategic collaborations with other companies to expand its product offerings and customer base. In June 2024, Axon entered into a partnership with Skydio (a leading U.S. drone manufacturer) to introduce a comprehensive line of drones in public safety that includes a scalable Drone as First Responder (DFR) solution. The offering incorporates autonomous drones, onsite docking stations and integrated flight control solutions from Skydio and real-time operations, real-time crime center capabilities and evidence management solutions from Axon.

The combined offering supports Axon’s DFR programs across its customer base and strengthens its market position in this category. Also, the company’s acquisition of Dedrone (in October 2024), a global leader in airspace security, boosted its DFR offerings.

Axon’s Northward Earnings Estimates

While the Zacks Consensus Estimate for AXON’s 2025 earnings per share has increased 2% to $6.63 in the past 60 days, the same for 2026 has increased 6.4% to $8.34.

Near-Term Concerns Prevail for Axon

The escalating costs and expenses are a concern for Axon’s bottom line. In 2024, the company’s cost of sales soared 39% year over year. The metric, as a percentage of sales, was 40.4%, up 160 basis points on high costs and expenses related to business integration activities, higher wages and stock-based compensation expenses. The increase in operating expenses has been adversely impacting the company’s margins of late. In 2024, Axon’s gross margin declined 160 basis points year over year.

AXON Shares Underperform Industry, S&P 500 & Peers

Shares of the company have lost 18.7% in the past three months compared with the Zacks Aerospace - Defense Equipment industry and S&P 500 composite’s decline of 6% and 1%, respectively. It has also underperformed compared with other industry players like Woodward, Inc. WWD and Teledyne Technologies Incorporated TDY, which have returned 2.3% and 3.2%, respectively, over the said time frame.

AXON Stock’s 3-Month Price Performance

Al Root

The situation in Ukraine took an unexpected turn after a heated Oval Office exchange between Vice President J.D. Vance and Ukraine President Volodymyr Zelensky that ended with President Donald Trump scolding the foreign leader.

"Either make a deal or we're out," Trump told Zelensky.

Investors were expecting a less contentious meeting with a potential deal for mining rights in exchange for additional U.S. support.

Defense stocks wobbled after the meeting. Shares of AeroVironment, a contractor supplying munitions to Ukraine, dropped about $2 from levels before the meeting, leaving shares down about 1.5% on the day.

Lockheed Margin dropped about $2 from levels before the meeting, though that stock is off daily lows and flat on the day. Shares of Northrop Grumman, General Dynamics, and L3Harris Technologies were down 0.7%, 0.3%, and 0.4% in late trading, while the S&P 500 and Dow Jones Industrial Average were both down about 0.1%.

The meeting might have impacted the market. President Trump told Zelensky he was putting the world at risk of a significant global conflict.

Defense stocks have struggled since the Nov. 5 election. Investors aren't sure about the direction of defense spending or Trump's priorities, which could siphon money away from large, expensive programs like the F-35 fighter jet into unmanned technology.

Through midday trading, Lockheed, L3Harris, Northrop, and General Dynamics shares are down about 16% since Nov. 5. The S&P 500 is up about 1% over that span. Shares of AeroVironment are off more than 30%.

"I have determined President Zelenskyy is not ready for peace if America is involved, because he feels our involvement gives him a big advantage in negotiations," wrote President Trump on Truth Social Friday afternoon. "I don't want an advantage, I want PEACE."

He added that Zelensky disrespected the U.S. and said he can come back when he is ready for peace.

Write to Al Root at allen.root@dowjones.com

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