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Axon Enterprise Inc. (NASDAQ:AXON) had a rough Friday morning. The stock slid in premarket trading after the company posted weaker-than-expected third-quarter results and trimmed its 2026 revenue outlook, pointing to delayed drone deployments. The shares had already dropped 9.81% on Thursday, so this is a two-day bruising.
Separately, Axon announced an additional $1.2 billion investment in drone maker Skydio, bringing its total investment to $5.2 billion.
Axon reported adjusted earnings of $1.72 per share, missing Wall Street's estimate of $1.88. Revenue rose 28% year over year to $908.55 million, but that was below the $937.59 million estimate.
Adjusted gross margin reached 59.2%. Higher memory costs are expected to pressure margins by about 50 basis points in 2026.
Meanwhile, bookings for Dedrone, 911, Fūsus and AI more than doubled to over $1 billion. So demand is not the problem.
Axon lowered its 2026 revenue forecast to $3.61 billion-$3.63 billion from $3.67 billion-$3.725 billion. Analysts expected $3.699 billion.
Management blamed procurement delays, funding uncertainty, installation schedules and regulatory approvals rather than weaker demand. In other words, the orders are there, but the paperwork and red tape are slowing things down.
Despite these setbacks, Axon expects annual revenue growth above 30% for the fifth consecutive year.
The company also cut its free cash flow forecast to $350 million-$400 million from $450 million, citing higher inventory spending.
Axon expects fourth-quarter revenue of $990 million-$1.01 billion, below the $1.061 billion estimate.
Software and Services revenue jumped 43% to $437 million. Annual recurring revenue rose 40% to $1.8 billion.
Connected Devices revenue increased 16% to $472 million, while Platform Solutions revenue surged 106% to $125 million.
Meanwhile, Axon's AI products surpassed $100 million in annual recurring revenue in less than two years.
The company also introduced Axon Body 5, featuring 25 times the processing power of its predecessor.
Axon's additional $1.2 billion investment increased its fully diluted ownership in Skydio to 37%.
The agreement gives Axon exclusive distribution rights for Skydio's public safety drones in the U.S. and Canada.
Axon also raised $1.15 billion through convertible securities to help fund the investment.
Meanwhile, the company increased inventory by more than $100 million during the quarter to protect against supply disruptions.
Management expects inventory spending to normalize by early 2027. However, higher memory costs could remain a headwind through 2028.
AXON Price Action: Axon Enterprise shares were down 9.11% at $347.69 during premarket trading on Friday. The stock is trading near its 52-week low of $339.01, according to market data.
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