Axon, the company best known for Tasers and body cameras, recently announced a "record quarter," with revenue hitting $711 million. A surface-level glance at the Q3 2025 numbers seems promising: 31% year-over-year growth, a surge in Software & Services revenue, and a raised full-year revenue outlook. But digging deeper, a more nuanced picture emerges. Axon reports Q3 2025 revenue of $711 million, up 31% year over year
The company is touting a 41% increase in Software & Services revenue, reaching $305 million. Annual Recurring Revenue (ARR) also jumped by 41% to $1.3 billion. These figures suggest a successful transition towards a subscription-based model, which is usually a good sign. However, the devil is always in the details. Is this growth organic, or is it fueled by acquisitions and aggressive sales tactics? The report mentions the acquisitions of Prepared and Carbyne. While these moves expand Axon's reach into the 911 call-handling space, they also muddy the waters when assessing true organic growth.
Here's where things get interesting. While revenue is up, total company gross margin decreased by 70 basis points year-over-year, landing at 60.1%. Even the adjusted gross margin (which excludes non-GAAP adjustments) dipped by 50 basis points to 62.7%. Axon attributes this to "global tariffs and increased Platform Solutions product mix in Connected Devices." But is that the whole story? I've looked at hundreds of these filings, and a consistent decline in margins, even with rising revenue, usually points to deeper structural issues—like increased competition, higher component costs, or pricing pressure.
The company's narrative focuses on the growth of "premium software offerings." Yet, the Software & Services adjusted gross margin also experienced a sequential decline, driven by professional services. This raises a critical question: Are these "premium" offerings actually delivering the promised profitability? Or are they requiring more costly support and implementation than initially anticipated? This is the part of the report that I find genuinely puzzling.
Axon highlights its "Future contracted bookings" which grew 39% year-over-year to $11.4 billion. This sounds impressive, but it's important to remember that this metric represents the total unfulfilled contracted bookings, including contracts with termination clauses. Axon expects to fulfill only 20% to 25% of this balance over the next 12 months, with the remainder stretched out over the following ten years. In other words, it's a long-term projection, not a guaranteed revenue stream. And those termination clauses? They represent a significant risk that isn't being adequately addressed in the rosy narrative.
It's worth remembering that Axon experienced a significant stock rally after Donald Trump's 2024 election victory, with investors betting on increased police funding. The stock was up as much as 90% between the election and early August. However, those gains have since fizzled, now standing at 62%. This suggests that the "Trump trade" is losing steam, and the market is starting to focus on the underlying fundamentals—which, as we've seen, are not as clear-cut as the company's press releases suggest.
A quick glance at some online forums shows a lot of people still expect the Axon stock price to jump. But it's important to remember that these online discussions are an anecdotal data set.
Axon's Q3 2025 report presents a mixed bag. While revenue growth is undeniable, the declining margins and reliance on future contracted bookings raise serious concerns. The market might be too focused on the headline numbers and overlooking the underlying weaknesses. A deeper, more critical analysis is warranted before jumping on the Axon bandwagon.
