Why Is Axon (AXON) Down 15% Since Last Earnings Report?

Core Viewpoint - Axon Enterprise reported mixed results in its Q3 2025 earnings, with adjusted earnings per share missing estimates while revenues exceeded expectations, indicating a complex financial landscape for the company moving forward [2][3]. Financial Performance - Adjusted earnings for Q3 2025 were $1.17 per share, missing the Zacks Consensus Estimate of $1.63, reflecting a 19.3% year-over-year decline due to rising operating costs [2]. - Total revenues reached $710.6 million, surpassing the consensus estimate of $700 million and marking a 31% increase year-over-year, driven by strong demand for TASER 10, Axon Body 4, and counter-drone equipment [3]. Business Segment Analysis - The Connected Devices segment generated revenues of $405.4 million, a 23.6% year-over-year increase, with a decrease in adjusted gross margin to 52.1% from 54.5% [5]. - The Software & Services segment saw revenues rise by 41.1% year-over-year to $305.2 million, with an adjusted gross margin increase to 76.8% from 76.3% [6]. Cost and Margin Profile - Cost of sales increased by 32.7% year-over-year to $283.3 million, while total operating expenses climbed 40% to $429.5 million, leading to a decrease in adjusted gross margin to 62.7% from 63.2% [7]. Balance Sheet and Cash Flow - As of Q3 2025, Axon had cash and cash equivalents of $1.42 billion, a significant increase from $454.8 million at the end of 2024 [8]. - The company reported a negative adjusted free cash flow of $71.4 million for the first nine months of 2025, compared to a positive $117.5 million in the prior-year period [9]. Future Outlook - For Q4 2025, Axon anticipates revenues between $750 million and $755 million, indicating a 31% increase at the midpoint, with projected adjusted EBITDA of $178-$182 million [10][11]. - For the full year 2025, Axon expects revenues of approximately $2.74 billion, reflecting about 31% year-over-year growth, with an adjusted EBITDA margin of around 25% [12]. Estimate Trends - Recent estimates for Axon have shown a downward trend, with a significant shift of -283.33% in consensus estimates over the past month [14]. - The stock currently holds a Zacks Rank 3 (Hold), suggesting an expectation of in-line returns in the coming months [16]. Industry Comparison - Axon operates within the Zacks Aerospace - Defense Equipment industry, where competitor ATI reported revenues of $1.13 billion for the last quarter, reflecting a year-over-year increase of 7.1% [17]. - ATI's expected earnings for the current quarter are $0.88 per share, indicating a year-over-year change of +11.4%, with a Zacks Rank 2 (Buy) [18].