Stock of the Year 2023 | Axon Enterprise vs Infosys

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett's status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How you going? 

Alec: [00:00:30] I'm very good, Bryce. Great to be here for this episode. Always an apprehensive episode for me. Always the start of a victory for you. The Stock of the Year. We'll say. We know that every episode is someone's first. So if you're just joining us, welcome. This podcast is Bryce and I try to learn about the stock market taking you on the journey with us. And what has become a tradition here at Equity Mates is we kick off the year with some bold predictions that we made last week and then we each present a Stock of the Year. Yeah, and to put it mildly, whatever stock I have chosen has become the kiss of death.

Bryce: [00:01:07] This. 

Alec: [00:01:07] Fall. And more than 50% most here.

Bryce: [00:01:10] Yes. 

Alec: [00:01:11] And I'd love to say this is going to be my year, but I just have zero confidence.

Bryce: [00:01:16] Well, you told me off line that you had three in your short list, two of which you guaranteed would go out in 2023. Yet you haven't Chosen. 

Alec: [00:01:24] Yeah, yeah, yeah. I'll talk. 

Bryce: [00:01:26] About them. Okay. All right. And I'm feeling that each year I'm getting more and more conservative, so we'll find out what happens here. You're right. We've got two stocks. We also have two of our staff members, Simon and Alf, who have some bold predictions that they want to include before the year gets going. So we'll crack into those. But before we do Ren, it was Valentine's Day last week, and if we can get some love from the Equity Mates community, that would be really appreciated. The community survey is live and it's your opportunity to let us know how we can continue to provide value and create content for you on your money and investing journey. Things like Get Started Investing were born from the Community survey. FinFest was born from the Community Survey. Crypto Curious was born from the Community Survey. We take your feedback seriously and wave it into our strategic objectives so doesn't take long to fill out. We love to know who is engaging with Equity Mates. The link will be in the show notes. Anyone who completes it in full goes in the draw to win $500 and or FinFest tickets for 2023. 

Alec: [00:02:34] If you're listening to this podcast while commuting, pull out your phone, open the podcast up, hit the link and you'll fill it out before Bryce finishes his Stock of the Year pitch. That's how quick it will be. But Bryce, before we get into it, Sasha, our producer, has put together a little montage like this little clip of the last few years of Stock of the Year. Neither of us have heard it yet, so let's kick off Stock of the Year by looking back over the past few years. 

Sascha: [00:03:03] Bryce and Alec, these are your stocks of the year. So we're going to start with your first stock of the year in 2018. 

Bryce: [00:03:19] 2019, New Year, New things. When I was thinking about this, I decided that I have no clue what stock is going to be the best this year. So the one that I've selected, the company that most people have heard of, a lot of people probably will use, but no one would have thought to invest. I sold my pick this year, which I don't think is going to be my job now. 

Sascha: [00:03:46] And so that was the beginning of stock into the year. We move to 2019 when Alec was already feeling the pinch. 

Alec: [00:03:55] I'm pretty nervous about this because it could be a big mistake for people who have just joined the podcast. My stock pick last year lost about 50% of its value. Have chosen Clusters. Group Holdings. 

Bryce: [00:04:09] I'm going back. In one that we did in our. Summer series. I hadn't put mine in. Name behind baby Bunting. 

Sascha: [00:04:17] Alec was dubious, but hindsight is everything. So let's move to 2020. 

Bryce: [00:04:23] We're going to be choosing a stock called City Chick ASX Code CCX. [00:04:28][4.4]

Alec: [00:04:29] Okay, so my stock of the year is Atomos ASX Code. AMS currently trading at a dollar. 

Sascha: [00:04:37] We know how 2020 went. So on to 2021. 

Bryce: [00:04:41] Are you going to be in suspense or are you going to. 

Alec: [00:04:43] Let me know the company Is.

Bryce: [00:04:44] The Company? Well, firstly, there's a lot of IPOs coming. 

Bryce: [00:04:47] We can probably doing it now because the. 

Alec: [00:04:50] Price is coming off of Brett Lee length. The run up to. 

Bryce: [00:04:54] The company is Roblox. 

Alec: [00:04:57] All right. 

Bryce: [00:04:57] So whatever Ren is about to say, short. 

Alec: [00:05:00] Once bitten, twice shy, I'm three times beaten, fourth time so just.

Bryce: [00:05:05] Referring to it. 

Alec: [00:05:06] Okay. So the company that I am talking about today is Tencent. 

Sascha: [00:05:12] Great timing from Alec. We'll remember how that went. So that brings us to last year. Stock of the year, 2022. Just in case you missed it, here's what the guys picked. 

Bryce: [00:05:23] It's a stock that always under-promise and over delivers. It's an Australian company every single time. It's very good at keeping the market updated. And always beats. Analyst expectations. And we Know that the stock. Market will either up. No. We know the stock market loves that and it is a global leader and now one of the world's largest asset managers. Macquarie. 

Alec: [00:05:53] How are you going to get 20 minutes out of this? No, you know what I'm going to bring. To the table? A company that I just find interesting and that I would enjoy talking about for 15 minutes because let's be honest, I can't do any worse than I've done before. And if it goes up, if it goes down, at least I'm bringing a really interesting company to the table that I don't think people have heard of before, but I think is worth knowing about because it's pretty cool. 

Bryce: [00:06:19] Awesome.

Alec: [00:06:19] Yeah. So I am excited.

Bryce: [00:06:21] Yeah. Great.

Alec: [00:06:22] This company is IAC Interactive Corp. 

Bryce: [00:06:27] Okay. Hey, Ren. Well.

Bryce: [00:06:29] Major takeaway for me, though, was how much our audio has. 

Bryce: [00:06:32] Increased since 2008. 

Bryce: [00:06:35] And still heard the cockatoos in the background. As we were recording remotely. You were down in Melbourne. I was up in Sydney and our bedroom's a lot has changed since then, but that was a great trip down memory lane and I can't help but think it's a massive wind up to you finally getting a stock across the line in 2023. 

Alec: [00:06:53] Just to recap how poor my selections have been, I select I don't think any more listed item was down like 90%. 

Bryce: [00:07:01] I thought it was up and it's.

Alec: [00:07:05] Atomos is Trading at like $0.06. Cost us Tencent, IAC. I think I lost 50% on All of them. 

Bryce: [00:07:11] It's not like they've been poor performers overall, like Tencent. 

Alec: [00:07:16] Yeah, No, no. Well, I mean I select an Atomos, but Tencent, IAC for me is, you know, this would be some of the best operators in the Game. 

Bryce: [00:07:23] This would be the year for Tencent. But that's a great Trip. 

Alec: [00:07:26] This. Year for Tencent. Can you're stuck with it, You. 

Bryce: [00:07:31] No, but one of my bold predictions was around. 

Alec: [00:07:36] China. 

Bryce: [00:07:36] Chinese tech tech companies outperforming the US counterparts. All right, Ren. Well, that brings us to this moment in time, 2023, where we have two stocks of the year now. It is incredibly important to caveat that this is general advice only. We have no research. 

Alec: [00:07:55] If the last 5 minutes of content wasn't enough of a caveat that you shouldn't take stock advice from this podcast, then I don't know what is. 

Bryce: [00:08:02] Yeah. That's right. Good call. Good call. So you don't mind kicking it off? 

Alec: [00:08:09] Yeah. Let's. Let's put our best foot forward.

Bryce: [00:08:14] I wanted a stock that wasn't tied to Australian markets or US markets and I kind of have been obsessed with India for a bit. And so that's where I kind of started. 

Alec: [00:08:31] Adani turnaround. 

Bryce: [00:08:32] Research, the Adani turnaround.. 

Bryce: [00:08:36] So my theory with Stock of the Year is I just want a large, stable company because I know you're going to come in with something interesting. I know you're going to come in with something that has the opportunity to probably go both ways in the tens of high teens or double digits. So I'm just going to stick with something that's pretty solid. I did have a few. There are some pretty fascinating companies in India. It's got a pretty robust domestic economy at the moment. And so I thought, you know, should I go down the path of retail? There's a company called PC Jeweller that has performed incredibly well, diamonds and and gold over in India. But I've decided to go with one of the largest market cap companies in India. Do you want to have a quick stab at what it might be? 

Alec: [00:09:23] Oh, the bank, HDFC or. 

Bryce: [00:09:25] Whatever that is one of the largest. 

Alec: [00:09:30] Reliance. 

Bryce: [00:09:31] Reliance? No, it is also one of the largest. Now, I've gone with one of the world's leading providers of consulting and outsourcing services. 

Alec: [00:09:40] As it's the one that the British prime Minister has a little stake in. 

Bryce: [00:09:45] I didn't know that. Infosys. I did not know.

Alec: [00:09:49] He married the daughter or I assume granddaughter of one of the Infosys founders, and she owns like a couple of percent. And so he's married and we did contact each other last year.

Bryce: [00:10:00] I didn't remember. Oh yeah.

Bryce: [00:10:02] I remember doing content on that, but I did n't remember the tie into Infosys.

Alec: [00:10:06] Oh, okay. 

Bryce: [00:10:07] Yeah, yeah. Oh, there you go. 

Alec: [00:10:09] No, it's all right. Well, tell us about the company. Tell us why it's yours. .

Bryce: [00:10:13] So just for a brief intro on what it does. As I said, it's one of the largest providers of consulting tech and outsourcing services in the world to businesses and organisations. To really break that down, they send out teams of experts to help companies improve operations, you know, build apps, outsource tech, implement cloud, digital transformation. They're one of the world's largest providers of that. As I said, I'm loving India at the moment. This is why I wanted to dial in on it but. The way I kind of went through this rant is we have a course with on the VIP course very a very important person, whatever it's called the Value Investor program. And in there is a very high level checklist that you can use when sorting out a thesis for a stock. So I kind of went through that very high level to see how info would come out. So it's a massive company, 300,000 employees, 54 countries. It operates around the world. It has a market cap of $80 billion. But when you're looking at the financials of this company and using the checklist, you look at things like the balance sheet. So it's got $2.3 billion in cash, no debt. You could say that it's got a bit of a fortress of a bank account of a balance sheet. It has revenue growth, pretty decent revenue growth over the last five years of 10 billion to $17 billion in revenue. So that's a category of 11% profit of $3 billion in 2022 and growing pretty low gross margins of 30%. It's low capital intensive intensive has pretty decent cash flow of about $3 billion and it is outperformed the Nifty 50, which is one of the benchmarks over in India over the past five years, the NIFTY50 is up 50% and Infosys is up 177% over the last five years. So some pretty significant growth there. What I like about it is the customer base. They're growing their top customers, so they have 38 customers who have contracts with them of over $100 million a year. So what that means is they are providing consulting and outsourcing services to some of the biggest companies in the world who are paying them 100 million bucks a year to outsource it to help them with implementing AI. A lot of businesses are now adopting digital and driving transformation and the future is digital and Infosys is sitting right in the middle of that. Now, question for you, Ren, when I was thinking about this is going into times of economic hardship, recession. Yeah. What do you think happens to the outsourcing industry?

Alec: [00:12:59] In times of recession? Yeah, I reckon what would happen is companies would do layoffs and get cut heads and then they would realise, oh, we actually needed a lot of those heads and then they would rather than employing new people, they would get contractors in. And I think for a lot of these services that would look overseas to the Philippines and India, I have absolutely no idea.

Bryce: [00:13:24] Well, that was my thinking. Yeah, Yeah. And that's kind of why I think that Infosys might be well positioned over the next few. 

Alec: [00:13:30] Oh, but you didn't actually. You didn't.

Bryce: [00:13:32] Well, I mean, there's articles that go both ways. It's like if you were to do research, like the research I did kind of says 50% of thinking. Is that exactly what you just said? And then the other 50% is you cut costs and lay low and you don't worry about outsourcing. You don't take on these digital transformation projects. You kind of hold back on that until you're a bit more certain. 

Alec: [00:13:53] Yeah, I mean, it's probably both. It's probably like in the immediate moment you're cutting and so you cut and so they lose out. But then over time you bring contractors on before you bring employees on. Yeah. 

Bryce: [00:14:06] Yeah, yeah. So that's kind of why I thought that, you know, maybe over the next sort of 12 months or so because whilst they're obviously based in India and listed over in India, they are incredibly connected globally. As I said, they're operating in about 60 countries around the world and so will definitely be impacted by economic conditions by some of the biggest customers. Important to look at the management team. Their CEO, Sahil Parekh, has been in the industry for 30 years and has an incredibly good reputation based on some of the articles that are written about him. He was a partner at API and was really widely credited with scaling the Indian operations over there. So if you're looking at management, he's done well. Looking at our checklist, though, it's not founder-led, it's not family run. They do have a sort of level five leader. So take on the management front level. 

Bryce: [00:14:55] Yeah, level five. Then I had to think about, whoa, what, what is the moat here? Is there a competitive advantage? And it is incredibly debatable when it comes to Infosys, what their moat is. I would say they don't really have a huge moat, a wide moat. They have competitive advantages in terms of brand recognition, their size, global presence. I think Accenture is actually probably bigger or more widely regarded as a digital tech sort of consulting outsourcing firm. But given this size and global presence, they they do have some competitive advantages there. And then in terms of valuation, their current pay is 28, Accenture is 26. Some of their other big competitors, Tata Consulting, is sitting at 31, so seem to be on par with some of their major competitors around the world. So that's my pick. Ren. 

Alec: [00:15:50] No, it's pretty stable. 

Bryce: [00:15:52] It hasn't really shot. I mean, it's shot the lights out over the last five years. 177% growth at the market. Last year in India, it was pretty hot. There is a risk that it sort of comes off, follows the nifty50 and and the market over there. The ticker is I and f Y Infosys Ltd. Yeah. Something a bit different. Not our you, not us putting it in the bank. 

Alec: [00:16:16] I've got a couple of questions. First one, let's just clarify the rules on this. Is the winner based on local currency return or Aussie dollar return? 

Bryce: [00:16:29] No, the. 

Alec: [00:16:31] Because the reason I ask that is the Indian rupee was the worst Asian currency in 2022. So are we factoring whatever the rupee does this year? 

Bryce: [00:16:42] Well, wouldn't you just factor in how it performed? 

Alec: [00:16:46] Like that's why I'm asking local currencies. See, I was just googling like Infosys share price and saying what the. 

Bryce: [00:16:52] Absolutely.

Alec: [00:16:53] Okay. Yeah. So then it doesn't matter what the rupee does. 

Bryce: [00:16:56] It's just. 

Alec: [00:16:56] It's just if anything, if the rupee has a bad year, it'd be sucking in a lot of money from European and American clients. 

Bryce: [00:17:04] Then. Yeah, it's just literal price performance in its currency from the 16th of February until the moment we record our wrap up. 

Alec: [00:17:15] So with inflation rampant, I'm going to go to the Venezuelan state oil company. [00:17:19][4.3]

Bryce: [00:17:21] Yes, I thought it was an interesting stock. It is one that you see in some of the big sort of emerging market funds all the time. It's usually in top ten holdings. It is a global leader. I did have a couple on my list that I was really tempted to do. I did do a full episode on Flutter, actually, but decided to switch. 

Bryce: [00:17:40] Really? Yeah. 

Alec: [00:17:41] Yeah. Flutters run a lot. 

Bryce: [00:17:43] Yeah, but it's. It's pretty interesting company. 

Alec: [00:17:45] Yeah. Love it. We spoke about online, didn't we? Yeah. Yeah. We went to a real sports betting favourite stage, and then I couldn't buy it. Yeah, that's. Remember that. Yeah. I think we spoke about it on the podcast. Yeah. 

Bryce: [00:17:56] Yeah. And then interestingly I went into ticker. If you want some good data, you must go and use ticker Equity Mates ticker tape t i k r dot com slash Equity Mates go news ticker. I plugged in a few sort of screeners to see what companies would come out. I put in Kaga over five years of greater than 30% gross margin over the last five years, a greater than 70% a year free cash flow over the last five years, pay of less than 25 and profitable all five measures and listed in Australia in the US and only five companies came back that hit that. One of them was in Mineral Resources. Yeah, I was like. Damn, it's such a good company. 

Alec: [00:18:39] Yeah, but you didn't want to do that one.

Bryce: [00:18:41] Yeah, that's. Everyone says that. So some pretty interesting ones. I thought of Air Lease. I thought, okay, travel travel's back. China's reopened demand for aircraft and air lease is the world's largest airline aircraft leasing company, and some of their biggest customers are Chinese airlines. And so I thought, is that a play to capture the growth in in travel so they lease you know their Boeings and and everything to massive airlines. Yeah, some pretty interesting ones out there anyway that's me love. Stake in the South. 

Alec: [00:19:23] Well. I think before I get onto mine, let's hear some of these bold predictions that we heard that we got from the team. Simon has sent us some. So let's get into it. 

Simon: [00:19:35] Simon here from the Equity Mates team. My bold prediction for 2023 is that at the year's end, 25 Bitcoin will be able to get you a house in Sydney. At the average house Price 25 Bitcoin gets your house in Sydney by the end of the year. I could have just gone.

Bryce: [00:20:01] With what price Bitcoin's going to. 

Bryce: [00:20:02] Be like. 

Alec: [00:20:03] Like that because it's like two predictions in 125. So I need to do some maths. So let's say the average house in Sydney are we say $1,000,000 million bucks divided by 25, So he thinks that Bitcoin is 40,000. 

Bryce: [00:20:17] So that's kind of close to me. I said it'd be double. 

Alec: [00:20:19] How you'd say.

Bryce: [00:20:20] Yeah, AUD. 

Alec: [00:20:21] No, So that's not even double because as of recording now it's 24,000 USD. Oh yeah.

Bryce: [00:20:26] True. 

Alec: [00:20:27] So basically 25 bitcoin could get you a house in Sydney now. So Simon has made an incredibly not bold prediction. 

Bryce: [00:20:36] Yeah, I think that is another.

Bryce: [00:20:41] He's another one around financial scandal from Simon. 

Bryce: [00:20:44] My bold prediction for 2023 is that matter will be the best. A forming stock out of the FAANG stocks. So Facebook now matter. Amazon, Apple, Netflix, Google Now alphabet matter will be the best performing of those five tech giants in 2024. 

Bryce: [00:21:05] Not bad he is. I met a bull very similar to one that I had, I'm pretty sure. 

Alec: [00:21:09] But it's very similar. 

Bryce: [00:21:11] He is a medical has been since our days working together at Woolworths. 

Alec: [00:21:14] Yeah yeah, yeah. Well I think that's a prediction you made. I actually bought some metal last year so I think we're aligned on that. 

Bryce: [00:21:23] Well, probably. 

Alec: [00:21:24] Probably not much more. We let's talk about all. 

Bryce: [00:21:26] Alright well let's take a quick ad break. On the other side we'll hear from ALF, another team member and then Ren. I'm really excited to hear what your Stock of the Year is, so let's hear from our sponsors. All right, Here is a bold prediction from Alf before we get into stocks, right before we get into Ren Stock of the Year. 

Alf: [00:21:45] My bold prediction is that reddit will ipo in 2023. 

Alec: [00:21:50] Alf can't say that's a particularly bold prediction. Reddit management have come out and said they are aiming for an IPO in the second half of this year, but they've said that publicly.

Bryce: [00:22:00] Okay. Well, good to know inside out. And then finally we've got one from Emily. 

Alec: [00:22:07] So we should say I would love a Reddit IPO. I think the platform is so underappreciated.

Bryce: [00:22:15] You know, I have nothing against it. I like it. [00:22:17][2.6]

Bryce: [00:22:18] All right, here we go. Final one from Emily.

Emily: [00:22:20] Hello, team Emily from Up Partnerships. So this is a theory that I've had for a while now, but I'm confident this is the year it's actually going to happen. There's just too many streaming services, and I believe we're going to see consolidation in the industry. So my bold prediction is Netflix is going to be bought, could be by Apple, looking to expand their entertainment services, could be Disney. Doesn't matter who. But the prediction is Netflix will be bought by another streaming giant by the end of 2023. 

Alec: [00:22:51] Love that from Em. There are too many streaming services. My bank account can agree with that.

Bryce: [00:22:56] Agree Ren. Something that I'm looking at in 2023 is do I need all my services? But let's get moving Stock of the Year for 2023 for you Ren. You do always bring an interesting one. I'm sure nothing has changed this year. So what are you putting on the line? 

Alec: [00:23:09] Before I get started, just a reminder that the community survey is live. If you would like to pull out your phones and complete the community survey and focus on that more than the next 10 minutes of content. No skin off my nose. Yes, but please go and fill it out. But Bryce, as you mentioned at the top, there are a few companies that I considered when doing this Stock of the year, and there are a couple that I felt were pretty. They were playing the percentages more than anything else. So the first company that was going to be my Stock of the Year. 

Bryce: [00:23:41] Is this one of the ones you said you guaranteed would go up? 

Alec: [00:23:46] I feel like. Guarantee is. A word that I think maybe you verbalised this year. 

Bryce: [00:23:52] So you.

Alec: [00:23:54] You listen to what I'm saying and. You consider. So the first company that was going to be my stock of the Year was Manchester United. Yeah. Listed over in New York ticker M-A-N-U. The English Premier League football Club. Blue chip of Blue Chip, one of the most sought after sporting assets in the world. The Glazer family is very likely to sell this year. We know that these blue chip clubs go for massive premiums and we know that there's a bidding war already brewing up. There's, I believe, a British billionaire and a Qatar investment fund that have both submitted bids. That's the reporting at least. And we know that there will be more. So for me, it was like, what's the likelihood that the Glazers sell this year pretty high? What's the likelihood that it sells for more than it's trading for? If it sells almost certain that it goes for more? So that's one that you can sort of lock in. It'll sell for more. The share price will go up if it sells. But then I was like, That's not very interesting because that's basically all outside. And so then I was thinking, do I just go ultra defensive? What's the most defensive stock I could buy in a recessionary environment That. And what if I just play not to lose this year? That's not a bad one. And we are going over to Omaha in May to the AGM. I didn't actually think of that one. That's probably a good one. 

Bryce: [00:25:26] Thank you.

Alec: [00:25:26] Can I change it? No. The company that I was going to do was Colgate-Palmolive. Oh, yeah. Now, people are probably familiar with both of those brands, but it is just like consumer staples as consumer staples can be. So then I was going to do Colgate-Palmolive and just talk about some of its brands. Colgate, obviously Palmolive, Ajax, the cleaning spray, a couple of laundry detergents, fluffy and cuddly. You know, I've got the pet food brand Hills, just things that people are going to keep going to the supermarket and keep buying dominant positions, brand moats, good scale and cost advantages. But again, pretty boring. 

Bryce: [00:26:07] I actually was going to go down the line of consumer staples as well. When you think about what's going to happen over the next 12 months. So it's definitely not a bad call. 

Alec: [00:26:14] Yeah. So then I looked in the Mirror And I did som Self-reflection and I Thought I may Not be able to pick a stock of the year. But what I want to pride myself on is bringing a new and interesting company to the table each year and then watching it fall 50% over the following 12 months. And so the company that I'm bringing is a company that I don't think you will have heard of before Axon Enterprise. 

Bryce: [00:26:45] All right. At least.

Bryce: [00:26:46] Not at first. Glance. 

Alec: [00:26:47] Well, to Kick off now, don't go. Just wait. I'll tell you all you need to know. 

Bryce: [00:26:51] Okay. 

Alec: [00:26:52] To kick off my pitch, I want to hear from Joe Biden. 

Audio Clip: [00:26:56] Police officers who put their lives on the line every single night and day. And we know we ask them in many cases to do too much to be counsellors, social workers, psychologists responding to drug overdoses, mental health crises and so much more. In one sense, we asked too much of them. I know most cops in their families are good, decent, honourable people, the vast majority. And they risk their lives every time they put that shield on. But what happened to Tyree in Memphis happens too often. We have to do better, give law enforcement the real training they need. Hold them to higher standards. Help them succeed in keeping us safe. We also need more first responders, the professionals, to address the growing mental health substance abuse challenges. More resources reduce violent crime and gun crime. 

Alec: [00:27:49] So, Bryce, that was Joe Biden at his State of the Union last week speaking about the challenges in police reform.

Bryce: [00:27:59] How ironic. 

Alec: [00:28:02] Or just pauses. A police siren goes past. The past decade has seen police accountability at the forefront of policymakers' minds, particularly in the US. You know, Tamir Rice, George Floyd, and then earlier this year, Tyree Nichols. And a lot of money is being pushed in that direction. Biden last year asked Congress for $35 billion for federal funding for police reform, police accountability, police training. Biden doesn't say the solution is defunding the police. He sees it as funding the police, massively, investing in new technology, investing in community support workers, investing in drug rehabilitation. There is one company more than almost any other that has benefited from this real focus on police accountability or this real funding push around that space, and that is Axon Enterprises. So a little bit about the company ticker on the NASDAQ ticker is excellent. So it was started in 1969. Another researcher, Jack Covert, developed a non-lethal electric alternative to a gun taser. You might know it as a taser. Up until a couple of years ago, this company was known as Taser International. So it started selling Tasers in the 1970s, went bankrupt, revived, struggled to get market share. A lot of controversies around the Taser. There have been a lot of lethal incidents. The company IPO'd in 2001. In 2017, it rebranded to Axon Enterprise and since then, in the five years since, the share price is up more than 500% in the past 12 months alone. The share price is up 34%. 

Bryce: [00:29:44] Oh wow. Outperformed. 

Alec: [00:29:45] For context. Yeah, yeah. For context. In the ten years before the name change, the share price was up about 200% between 2007 and 2017. 

Bryce: [00:29:57] So hold on. Is there an ETF here of companies that change names? 

Alec: [00:30:02] Maybe. So what happened with the name change? Is that the thing that drove the share price performance? No, no, because this company has done a massive pivot over the past few years from tasers to body cameras and now from body cameras to a cloud based evidence management platform for cops. For cops. Yeah, yeah, yeah. So in 2008, the company unveiled its first body camera, The Axon Pro. Recognise that name? That's now the name of the company. The footage gets uploaded to a cloud platform. Evidence icon and Axon have dominant market shares in both the market for Tasers and the market for body cameras. So from what I was reading, they have an 85% market share among police departments in US major U.S. cities for body cameras. And according to the Verge, 90% of the 18,000 police departments in the United States use their Tasers. So this story is really a story about police accountability, body cameras. This evidence com platform, because it is a pretty remarkable story how this business has moved, has pivoted. But before we get there, we have to ask the question, do body cameras work? 

Bryce: [00:31:20] What do you mean, like literally or do they work in terms of like. So like actually preventing police brutality? 

Alec: [00:31:29] Yes. Because all of this if they don't actually work on solving the problems, then all this funding will stop flowing that way and will flow into other solutions. 

Bryce: [00:31:37] I'm sure this starts, but I have my opinions. 

Alec: [00:31:40] I'd love to hear them. 

Bryce: [00:31:43] They only work if the end result is police.

Alec: [00:31:46] It has actual accountability. 

Bryce: [00:31:49] Show other stats around that. 

Alec: [00:31:51] Yeah. This starts. In 2013. The Rialto Police Department did a 12 month study on body cameras, found an 88% drop in complaints filed against officers and nearly a 60% reduction in officer use of force incidents. When you know someone's watching, they behave differently. I guess the key thing is exactly what you said, that there has to be accountability. Yeah, Yeah. But we're not here to talk about the best way to reform police departments. We're here to talk about this company. And this company is undergoing a massive transformation. It's turned itself from a company that sells hardware to a company that sells recurring software subscriptions. So in 2016, 34% of its revenue was recurring. In 2020, 73% of its revenue is recurring. The company now has seven different, I guess, like subscription revenue streams that they sell and they try and upsell a variety of different subscriptions. In 2017, body cameras and evidence com were a quarter of the company's revenue. So we're still not talking, you know, the lion's share, but it's definitely growing between 2016 and 2021, we don't don't have full year, 2022 data yet. Revenue grew at a 26% compound annual growth. It was previously profitable, but it's not profitable and it hasn't been profitable for the last couple of years. But looking at the most recent quarter results. Q Three from last year, 311 million in revenue, up 34% year on year and $12 million in profit for the quarter. So I guess that's the company. It's a old school hardware company trying to undergo this digital transformation in the context of massive content like massive controversy around the industry and massive funding directed towards their industry. And you can really only see more funding flowing to some of these things. And they have a pretty dominant franchise in the US in this space, like dominant market share. And so the company is now trying to expand overseas. They've opened up, I think, an office in Australia, but also an office in the Netherlands. And so they're trying to sell their body cameras and their evidence com platform around the world. 

Bryce: [00:34:09] Yeah, well, that was going to be my question. It's not it feels like it's, it's not an issue that's just centred in the States, although it feels like in some instances there are major problems over there compared to other police departments around the world. But this is a technology that I'm sure like Australian cops also have body cameras here. 

Alec: [00:34:26] Yeah, that's my I didn't do the research on like who Australia uses, but I guess that's the question. There would be incumbents everywhere around the world that they have to compete against. Yeah 

Bryce: [00:34:37] And there's also probably police departments that, well, like here in Australia, like the going for the gun is like absolute last resort. You're going for the taser first time round on you. 

Bryce: [00:34:46] Yeah, yeah, yeah. 

Alec: [00:34:48] And like tasers are incredibly controversial. Yeah. The intention is to provide a non-lethal alternative to firearms, which is obviously a noble intention. I have nothing more t Say about this. 

Bryce: [00:35:01] Now, it's a fascinating company, and I think that we know I am looking at the share price here, 2019 through, even since the end of May, middle of last year, it's up 127%. We know we've seen it time and time again in these companies that can transition their revenue from old school. Like widget sales. Through to recurring revenue and then having upgrades and the ability to upsell customers to higher and higher levels of subscription. Investors just love it. And the more You can push through that revenue into subscription or recurring, the share price tends to follow suit. 

Alec: [00:35:42] Now, as I was listening to Sascha's montage at the start, I did get nervous because investors have loved this company for the last little while. And there's probably an argument for there's definitely an argument that it's overvalued. So we'll see what the year holds for this company. But I just it's a fascinating company that I just came across, and I just thought it was worth bringing that to the table. 

Bryce: [00:36:06] Great Example of of of taking what's going on in the world around you and and which was the increase in funding that Biden's trying to push through and figuring out how that can flow on to an investment opportunity. 

Alec: [00:36:19] Yeah. Yeah. Now I guess the important question if I don't own any of this, the question is, is this ethical?

Bryce: [00:36:27] I think so. 

Alec: [00:36:28] Yeah. I tend to agree. I think, you know, ten years ago when it was a taser company, there's probably a different argument. But I think what it's doing now, it's, you know, its mission statement. How's this for consultant led corporate speak? It's mission statement. Accelerate justice, capture truth protect life. 

Bryce: [00:36:50] Was an insurance company. 

Alec: [00:36:53] Um there is. There is a you got to put a flag in the whole is it ethical though because some of the plans that it produces a little bit how you're going how's this one? From June 2022, Axon proposed a plan to stop school shootings by producing and selling Taser armed drones. 

Bryce: [00:37:16] What? 

Alec: [00:37:17] Yeah. 

Bryce: [00:37:18] How does that stop school shootings? 

Alec: [00:37:20] Well, I guess it ties to the issue. 

Bryce: [00:37:21] what if they're inside? 

Alec: [00:37:23] The drones can go the don't know, like just. 

Bryce: [00:37:25] Hanging out in the classroom. 

Alec: [00:37:26] Well, I. I think you'd probably pack them away. It'd be like a break in case of emergency situation. 

Bryce: [00:37:31] That is so Strange. 

Alec: [00:37:33] I mean, to that credit, Axon's ethics boards unanimously rejected the proposal. Nine members of the ethics board resigned because of the proposal. For me, policing has so much scope to be improved from technology, but governments aren't going to be the ones to develop and commit the resources to develop that technology. So, you know, I think on balance it's better that these companies exist and produce body cams and software platforms and stuff like that.

Bryce: [00:38:00] Absolutely. Well, Love it. Ren again brought a very interesting company to the table, some solid numbers behind it. And yeah, we've got two now Infosys and Axon. So and Nasdaq the ticker was A-X-O-N.. 

Alec: [00:38:16] So in one final note, I thought it was quite funny. So you know how we called it. Do you know how when we did deal over summer, people were calling it the apple of agriculture. Yeah. The Motley Fool calls this company the Apple of law enforcement. 

Bryce: [00:38:34] The difference there is just the 

Alec: [00:38:36] Move from the hard way to a recurring. 

Bryce: [00:38:39] Subscription. So if anyone's wondering. Yeah. 

Alec: [00:38:41] Yeah. It's a pretty reasonable analogy. I just. It's funny. Yeah. 

Bryce: [00:38:45] Well I think in a way that is the Apple of media. 

Alec: [00:38:47] Of the Australian. Finance podcast. 

Bryce: [00:38:51] All right. Well we have Reached the end of today's episode where we'll, we'll get both of those stocks into the forum and on our Facebook page. But if you do have a suggestion of what your stock of the year might be, jump on those community forums and let us know. Otherwise hit us up at contact@equitymates.com. We would love to hear from you back into the full swing of things next week. We've got plenty of awesome expert interviews coming up. Don't miss the tail end of this week though, because we have a three part series on value investing with our own Rask and we look at the basics of value investing and then put that to work in a case study. And we look at Zero and Apple over three episodes and how you can think about actually valuing those companies for those that are interested in valuation. So that is the end of this week. But again, it's an absolute pleasure as always to chat stocks and fascinating companies there. We'll close it out and we'll speak next week. 

Alec: [00:39:47] Sounds good.