Spruce Point has recently learned of a looming competitive threat to Axon AAXN of which the Street is not yet aware. Our full slide update is available exclusively on Twitter @sprucepointcap
PhaZZer Global, one of Axon’s few competitors in the CEW space through the mid-2010s, is poised to launch a new CEW in October of this year, and plans to price it at a significant discount to Axon CEWs.
Since Axon (then Taser) defeated PhaZZer in a patent and trademark infringement case in 2017, it has effectively had monopoly-like control of the U.S. law enforcement market for CEWs, and has increased prices significantly with its renewed dominance over the space.
However, after being forced to sit on the sidelines since being issued an injunction in 2017, PhaZZer will reenter the market with a discounted product this year and, we believe, seriously threaten Axon’s electronic weapon dominance. PhaZZer had 300 customers domestically before the injunction and was experiencing significant growth. It is currently in 27 countries internationally.
We believe that public agencies will have to evaluate the efficacy and relative cost of the PhaZZer as part of their fiduciary obligation to seek best price and quality, and that natural budget pressures will drive many departments to opt for the cheaper PhaZZer CEW.
Axon’s contract terms allow cancellation with limited restrictions should customers decide to switch.
Analysts expect 10% Taser growth in 2020. But just modest assumptions for market share loss, and price concessions, will cause a big miss.
With Axon now trading at the average analyst consensus target of $73, the risk/reward is highly unfavorable.
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