Can Axon Enterprise Sustain EBITDA Margin Momentum Amid Cost Pressures?

Axon Enterprise, Inc. AXON achieved a solid adjusted EBITDA of $155.2 million in the first quarter of 2025, which increased 9.6% year over year. The company's adjusted EBITDA margin reached 25.7%, reflecting an increase of 200 basis points (bps). This improved margin not only reflects its strong operational efficiency but also benefits from the continued adoption of its premier products and solutions.

Despite rising operating expenses, AXON’s adjusted gross margin grew 40 basis points to 63.6%. The improvement in margins was driven by higher revenues generated from robust sales of TASER 10, Axon Body 4, personal sensors and platform sensor products. It’s worth noting that the company reported revenues of $603.6 million in the first quarter, which increased 31.3% year over year.

Axon Enterprise’s focus on effective cost management and revenue improvement is likely to expand its margin performance. For 2025, AXON currently expects adjusted EBITDA in the range of $650-$675 million, higher than its previous outlook of $640-$670 million. The updated guided range implies an adjusted EBITDA margin of approximately 25%. 

It's worth noting that, effective first-quarter 2025, Axon Enterprise realigned its business segments. This realignment is expected to enhance the company’s visibility into segment-specific performance and enable it to effectively manage its costs. This strategic move will likely support Axon Enterprise’s ongoing margin improvement and operational efficiency.

Peers’ Margin Performance

While AXON is putting its best foot forward to improve margins, the road ahead for its peers like Kratos Defense & Security Solutions, Inc. KTOS and Teledyne Technologies Incorporated TDY looks bumpy as they struggle to maintain healthy margins.

Among its major peers, Kratos Defense is facing cost pressure. In the first quarter of 2025, its cost of sales increased 11.1% year over year, while its SG&A expenses rose 4.8%. Kratos Defense’s gross margin declined 30 bps to 24.3% in the quarter.

Teledyne Technologies’ cost of sales rose 7.8% year over year in first-quarter 2025. The company’s SG&A expenses also increased 6.5% year over year. Teledyne Technologies’ gross margin declined 320 basis points to 42.7% in the same period.

AXON’s Price Performance, Valuation and Estimates

Shares of Axon Enterprise have surged 48.3% in the past three months compared with the industry’s growth of 22.5%.

From a valuation standpoint, AXON is trading at a forward price-to-earnings ratio of 115.81X above the industry’s average of 48.85X. Axon Enterprise carries a Value Score of F.

The Zacks Consensus Estimate for AXON’s 2025 earnings has declined 0.8% over the past 60 days.

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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