Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Why The Market Is Missing A Renewed Competitive Threat To Taser's Core CEW

|About: Axon Enterprise, Inc. (AAXN)
Summary

Spruce Point has learned of an imminent renewed competitive threat to Axon. The Street is not yet aware. PhaZZer Global is set to launch a new CEW in October 2019.

Axon's injunction for patent 262 expires Oct 2019. We expect PhaZZer's new product will be 30% cheaper, forcing gov't agencies to evaluate cost and performance of Taser v PhaZZer.

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.

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.

Disclaimer

This research note and our presentation expresses our research opinions. You should assume that as of the publication date of any presentation, report or letter, Spruce Point Capital Management LLC (possibly along with or through our members, partners, affiliates, employees, and/or consultants) along with our subscribers and clients has a short position in all stocks (and are long/short combinations of puts and calls on the stock) covered herein, including without limitation Axon Enterprises, Inc. (“Axon”), and therefore stand to realize significant gains in the event that the price of its stock declines. Following publication of any presentation, report or letter, we intend to continue transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation. All expressions of opinion are subject to change without notice, and Spruce Point Capital Management does not undertake to update this report or any information contained herein. Spruce Point Capital Management, subscribers and/or consultants shall have no obligation to inform any investor or viewer of this report about their historical, current, and future trading activities.

This research note and our presentation expresses our research opinions, which we have based upon interpretation of certain facts and observations, all of which are based upon publicly available information, and all of which are set out in this research presentation. Any investment involves substantial risks, including complete loss of capital. Any forecasts or estimates are for illustrative purpose only and should not be taken as limitations of the maximum possible loss or gain. Any information contained in this report may include forward looking statements, expectations, pro forma analyses, estimates, and projections. You should assume these types of statements, expectations, pro forma analyses, estimates, and projections may turn out to be incorrect for reasons beyond Spruce Point Capital Management LLC’s control. This is not investment or accounting advice nor should it be construed as such. Use of Spruce Point Capital Management LLC’s research is at your own risk. You should do your own research and due diligence, with assistance from professional financial, legal and tax experts, before making any investment decision with respect to securities covered herein. All figures assumed to be in US Dollars, unless specified otherwise.

To the best of our ability and belief, as of the date hereof, all information contained herein is accurate and reliable and does not omit to state material facts necessary to make the statements herein not misleading, and all information has been obtained from public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer, or to any other person or entity that was breached by the transmission of information to Spruce Point Capital Management LLC. However, Spruce Point Capital Management LLC recognizes that there may be non-public information in the possession of Axon or other insiders of Axon that has not been publicly disclosed by Axon. Therefore, such information contained herein is presented “as is,” without warranty of any kind –whether express or implied. Spruce Point Capital Management LLC makes no other representations, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results to be obtained from its use. You should assume all statements made are our opinions, unless sourced as facts where practical.

This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific security, and is not expressed as, or implied as, assessments of the quality of a security, a summary of past performance, or an actionable investment strategy for an investor. This is not an offer to sell or a solicitation of an offer to Buy any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction. Spruce Point Capital Management LLC is not registered as an investment advisor, broker/dealer, or accounting firm.

Disclosure: I am/we are short AAXN.