Date: 2026-02-25 (original) | Refreshed: 2026-04-28 (post Axon Week 2026 + ~33% drawdown) Quarter: Q4 FY25 (period ending December 31, 2025) Persona: Saul Rosenthal (SaulR80683) Prior Saul Analysis: Q3 FY25 (2026-02-22) — Thesis Intact/Strengthening Atlas Baseline: Read and consulted — generally agree, my own emphasis noted below
The Q4 FY25 quarter itself was one of the cleanest blowouts I have ever seen. Revenue reaccelerated to +39% YoY (highest in twelve quarters!). Net new ARR reversed the four-quarter decel. FCB added THREE BILLION DOLLARS in a single quarter. NRR hit a record 125%. Adj EBITDA 206mat25.96B revenue, 28% EBITDA) that, given their track record of beating 3-year commitments, may well be conservative.
What's changed since I wrote this on Feb 25? The price. Not the business. The stock is down ~33% from the print and ~54% off its 52-week high of $886. EV/TTM revenue has re-rated from ~14x to ~11.7x. Forward EV/Revenue is now ~9x. And during this 60-day drawdown, the leading indicators have done nothing but improve: Axon Week 2026 (April 7-10) delivered the promised "transformative" AI roadmap with three new product launches (Axon Vision, expanded Assistant, Axon 911 cloud).
This is a multiple compression story, not a fundamental break. Thesis: INTACT / STRENGTHENING. And for the first time in a long time, AXON's valuation is actually fair rather than aspirational. My 12.4% total position (6.1% equity + 6.3% LEAPS) stays — and unlike at the Feb-24 print, I would consider modest adds on further weakness. That's how much my view of margin-of-safety has improved at this price.
| Q1_FY25 | Q2_FY25 | Q3_FY25 | Q4_FY25 | |
|---|---|---|---|---|
| Mar-25 | Jun-25 | Sep-25 | Dec-25 | |
| Revenue ($m) | 604 | 669 | 711 | 797 |
| YoY % | +31% | +33% | +31% | +39% |
| QoQ % | +5.0% | +10.8% | +6.3% | +12.1% |
| ARR ($m) | 1,104 | 1,183 | 1,252 | 1,347 |
| ARR YoY % | +34% | +39% | +41% | +35% |
| Net New ARR ($m) | 103 | 79 | 69 | 95 |
| NRR | 123% | 124% | 124% | 125% |
| FCB ($B) | 9.9 | 10.7 | 11.4 | 14.4 |
| S&S Revenue ($m) | 263 | 292 | 305 | 343 |
| S&S YoY % | +39% | +39% | +41% | +40% |
| GAAP GM % | 60.6% | 60.4% | 60.1% | 57.9% |
| Adj GM % | 63.6% | 63.3% | 62.7% | 61.1% |
| Adj EBITDA ($m) | 155 | 172 | 177 | 206 |
| Adj EBITDA Margin | 25.7% | 25.7% | 24.9% | 25.9% |
| GAAP Op Inc ($m) | -8.8 | -1.0 | -2.1 | -50.1 |
| GAAP Net Inc ($m) | 88 | 36 | -2 | 3 |
| Non-GAAP EPS | 1.41 | 2.12 | 1.17 | 2.15 |
| FCF ($m) | 1 | 111 | 33 | 155 |
| SBC ($m) | 140 | 139 | 146 | 209 |
| SBC % Revenue | 23.2% | 20.8% | 20.6% | 26.2% |
In my Q3 analysis I flagged three watch items. Here's the scorecard:
Two-out-of-three on the bullish side, plus FCB and NRR delivering well above any reasonable expectation. That's an A grade quarter.
This is what I love most about AXON: the leading indicators are never ambiguous.
ARR → Revenue divergence — RESOLVED BULLISHLY. In Q3, ARR was growing 41% while revenue grew 31% — the biggest bullish divergence I've tracked at any company in years. I said in my Q3 review: "ARR leads revenue by several quarters. When ARR is accelerating while revenue is flat, that tells you the future is getting better, not worse." Q4 revenue came in at +39%. ARR moderated to +35% on a larger base. The divergence resolved exactly the way it should — revenue caught up to ARR. Textbook.
Future Contracted Bookings — That is such a preposterous result! $14.4 billion! Axon's TTM revenue is $2.8 billion. Their contracted backlog is $14.4 billion — more than 5 years of revenue at today's run rate, already signed and committed. They added $3.0 billion in a single quarter. I have owned a lot of great businesses over my career and I have never seen a $3B single-quarter bookings add at a company doing $800m of quarterly revenue. Annual bookings $7.4B, +46% YoY. Isner had said in Q3 "high 30s" bookings growth — he delivered 46%. Under-promise and over-deliver, as it should be.
Management says 20-25% of FCB is fulfilled in the next 12 months — that's $2.9-3.6B, which brackets the FY26 27-30% guide perfectly. FY26 guidance isn't a forecast — it's already sitting in signed contracts.
NRR at 125% — Record. Up from 124% last quarter. The first 125 print. Hardware locks + software dependency + 10-year contracts is what produces this number. Who else is delivering 125% NRR at $2.8B of revenue? Not many.
Software & Services mix holding at 43%. $342.5m, +40% YoY. Software-only gross margin remains >80%. S&S growing at 40% while hardware grows at 38% — essentially in lockstep. The software mix isn't diluting from hardware growth. Exactly what I want.
Platform Solutions at $80.9m, +81% YoY. This is Vehicle Intelligence and other new hardware products. Lower margin (adj GM ~49%), which is why the blended GM compressed. But +81% YoY is the TAM expansion story showing up in real numbers.
Axon Week was held in Nashville and management delivered the promised "transformative" capabilities. Three product launches:
Axon Vision — Real-time AI applied to live video. Alerts on critical activity. Integrates with nearby cameras for verification. This is essentially a native ALPR/object-detect competitor to Flock built directly into the Axon ecosystem. If you're an existing Axon customer, why would you buy Flock when this comes from your existing trusted partner?
Axon Assistant (expanded) — Now CJIS-compliant (the standard for criminal justice information). Ecosystem-wide. BOLO, case research, coordination workflows. The 500-customer base from year one is the seed; this expansion is the watering can.
Axon 911 — Cloud-native EOC infrastructure. AI-enabled call handling. This is Prepared + Carbyne integrated as a productized cloud platform.
I had said in my Q3 review: "Rick's language — 'we won't just be a vendor, we'll be the partner our customers can't imagine operating without' — suggests the AI layer is evolving into something deeply embedded." Axon Week confirmed this. The platform breadth is now: Hardware (TASER, body cams, sensors, drones) → Cloud (Evidence.com) → AI overlays (Draft One, Assistant, Vision) → Adjacent verticals (911, ALPR, enterprise via Body Mini). Six revenue vectors, all expanding, all integrated.
The customer reception has been concrete. The Bernalillo County Sheriff's Office publicly used Axon Assistant translation to de-escalate a high-risk Russian-language traffic stop. Sheriff John Allen: "Before, we didn't want AI in police work. Now people are asking for more of it, because they're seeing the advantages." That is not a press release — that is a customer telling the world the product works.
Here's what's interesting. From the Feb-24 print to today, AXON is down ~33%. From the 52-week high of $886, it's down ~54%. EV/TTM revenue has compressed from ~14x to ~11.7x. Forward EV/Rev (FY26) is now ~9x. Rule of 40 sits at 53-55. EV/TTM Adj EBITDA is ~46x.
Has anything broken in the business? No.
This is multiple compression in a high-quality compounder. I don't time markets. I have NO IDEA what AXON does next month. But here's what I do know: when you can buy a 33% YoY revenue grower with 125% NRR, $14.4B contracted backlog, dominant market position, and credible $6B/2028 targets at ~9x forward revenue — that is not a price you should be running away from. That is closer to a buying opportunity than a selling one.
I'm not jumping in aggressively. The valuation is fair, not cheap. But the asymmetry has improved meaningfully since Feb 24.
I am enthusiastic, but I am not naive. Three things I'm watching, refreshed for current context:
1. Gross margin compression — still the main fundamental concern. GAAP GM 57.9%, down 210bps YoY, lowest since Q1 FY24. Drivers are tariffs (transient? hopefully) and Platform Solutions mix (structural — ~49% adj GM vs ~77% for software). As Platform grows at 81% YoY, it pulls down the blend mathematically. Software-only GM still >80% — the SaaS engine is intact. But if total Adj GM falls below 60% sustainably, the path to 28% EBITDA in 2028 gets harder. I need to see Adj GM stabilize ≥61% in FY26.
2. SBC at 26% of Q4 revenue — but the trajectory is improving. $209m Q4 (incl. 32mseverance).Run − rateexcludingseverance 185m. FY26 SBC guidance $590-620m, including $230m from the Employee XSP plan. As a percentage of revenue, FY26 SBC compresses from ~22% to ~16-17%. That's the credibility bridge. The 2028 target of <2.5% annual dilution is tight but achievable — FY25 dilution was already ~2.1%.
3. FY26 guidance at 27-30% — 30% as ceiling. First time. Pattern says they beat by $100-130m, putting actual closer to $3.7B (~30%+ growth). I would not have flagged this if guidance had come in as 30%+. As it stands, Q1 FY26 (May print) is the tell. If they raise the FY26 range, the ceiling concern dissolves.
Prior belief going into Q4 (Feb-22): Revenue stable at ~31%. Net new ARR decel was the worry. SBC at 20%+ a concern. Position at 12.4% total. Conviction 4/5.
Updated belief at Feb-25 print: Revenue reaccelerated to 39%. Net new ARR reversed at 95m.FCB+3B in a single quarter. NRR at record 125%. Platform firing on all cylinders. Mild disappointment on FY26 ceiling. Conviction held at 4/5.
Refreshed belief at Apr-28: The fundamentals have only improved since the print. Axon Week delivered the AI roadmap. TD Cowen and the analyst community are reiterating Buys. The 33% drawdown is multiple compression, not a fundamental break. The margin of safety has materially improved. Conviction 4/5 — but for the first time in a long time, I'd consider adding (not selling) on further weakness.
The bear case remains valuation premium and SBC. But at ~9x forward revenue with 30%+ growth and 25% EBITDA margins, the valuation premium has compressed meaningfully. That's a different setup than Feb 24.
| What I Was Watching | Expected | Actual | Verdict |
|---|---|---|---|
| Revenue | $750-755m (guide) | $797m | Beat by $44m |
| Revenue YoY % | ~31-33% | +38.5% | Reacceleration confirmed |
| Net new ARR | >$70m needed | $95m | Reversal confirmed |
| NRR | 124% (stable) | 125% (record) | Exceeds |
| FCB | Strong Q4 seasonal | 14.4B(+3B seq) | Preposterous result |
| Adj EBITDA margin | ~25% | 25.9% (record) | Above target |
| FY26 guide | ≥30% as floor | 27-30% (30% ceiling) | Below hope — watching |
| SBC compression | Needed | FY26 ~16-17% rev | Improvement confirmed |
| Axon Week deliverables | "Transformative" AI | Vision + Assistant + 911 launched | Delivered as promised |
| Multiple holds at print level | ~14x EV/Rev | ~11.7x today (-17%) | Compression — improves entry |
Patrick (Rick) Smith, Josh Isner, and Brittany Bagley have delivered against every major commitment for seven consecutive years. Three years of beating FY guidance by $100-130m. Isner promised "high 30s" bookings — delivered 46%. Bagley delivered 25.5% Adj EBITDA margin against 25% target. And in April they shipped exactly the AI products they had previewed.
The one unresolved item is the Flock Safety partnership dispute — five quarters with no public update. With Axon Vision now native to the ecosystem, this matters less than it once did. Axon doesn't need Flock as much as Flock needs Axon.
I trust this management team. That trust has been earned, quarter by quarter, year by year.
AXON delivered a blowout Q4 and the platform thesis got stronger at Axon Week. Revenue reaccelerated to 39%, ARR adds reversed, FCB +$3B sequential to $14.4B, NRR a record 125%, Adj EBITDA a record 206m.Managementintroduced2028targets(6B/28%) that history says they will beat. Axon Week delivered Vision, Assistant expansion, and Axon 911 cloud — the three pillars of the next AI layer.
The stock is down 33% in 60 days while the business has only gotten better. EV/TTM Rev re-rated from ~14x to ~11.7x; FY26 EV/Rev now ~9x. For the first time in a long time, I would consider adding to AXON on further weakness. I'm not a market timer — I have NO IDEA what the stock does in May. But I know what 9x forward revenue + 30%+ growth + 125% NRR + $14.4B backlog + dominant market position looks like. It does not look like a sell.
Position stays at 12.4% total (6.1% equity + 6.3% LEAPS). The LEAPS — Jan '28 $440C — are now slightly out-of-the-money rather than deeply in-the-money. That's painful in mark-to-market terms. But the underlying business has only strengthened. Time decay is the enemy here, but I have until January 2028 to be right, and the FCB alone makes 2027/2028 revenue almost mechanical.
Watch closely: Q1 FY26 print (May 2026) — net new ARR >$80m, FY26 guidance raise, gross margin trajectory, first reportable Axon 911 revenue line. Axon Body Mini enterprise launch (mid-2026). Carbyne integration milestones.
Tell me again that stock picking doesn't work! And tell me again that you should sell wonderful businesses just because the price went down!
Best, Saul
Original analysis: 2026-02-25 | Refreshed: 2026-04-28 | Quarter analyzed: Q4 FY25 (Dec-25) Data source: Scout brief 2026-02-24 | Atlas refresh consulted: 2026-04-28 Decision-spec applied: Don't sell winners because they went down. Stay fully invested. Concentration in highest-conviction. Read every transcript yourself. Compounding is the engine.