Strong Q409 Financial Results Examined

Reversing a year long negative trend, Axis's Q4 2009 financial results were very strong, raising the question, why?

Revenue was up 32% (Q409 compared to Q408). The results were even better in local currency terms - up almost 40% [Note: for most of 2009, currency exchange swings made Axis's financial performance look better than they were. Now, it's the reverse).

Despite the strong 4th quarter, for the full year (2009), Axis growth was nearly flat, with only 3% local currency growth compared to 2008.

Compare this to the previous quarter (Q308), where growth in local currency terms was negative. Also, Axis's stock price has shot up about 65% in 6 months (from about 65 Kroner in Summer 2009 to almost 110 Kroner on Feb 3, 2010).

Why Such Strong Growth Now?

Axis's explanation for this growth was:

"The strong close to the year is due to a generally good inflow of orders as well as conclusion of deals relating to previously deferred projects."

This raises two important questions: (1) How much did deferred deals drive revenue growth? and (2) How strong is the pipeline? The released documentation did not provide much guidance on either.

A third factor to take into account was that Q4 2008 was a very weak quarter for Axis so the comparable is 'easy'. Looking at the Q4 2008 report, Q4 2008 was only up 5% over Q4 2007. Q4 2008, of course, was the first quarter after the market crash.

What will be interesting to see is whether such growth is sustainable. This will become clear as the next 2 quarters of results are reported. On the other hand, even for now, this is clearly better performance than ADT/Tyco, which continues to struggle significantly. 

Product Development Strong

One other factor that Axis cites for its growth is Axis's continued aggressive product launches. Looking back over the last year, while most vendors introduced 720p/1080p box/dome cameras, Axis has introduced a broad number of differentiated products, like thermal cameras, a video analytics platform, a mobile NVR, domes with interchangeable cameras, a 3MP camera with a new type of iris, a mini-encoder, etc., etc. 

We still think Axis will lose the low end of the market (with the rise of Asian manufacturers and the adoption of 'standards'). However, with their product development pace and minimal competitive response, Axis is building a strong buffer against their mid-tier competitors. We are interested to see the Spring releases from other IP manufacturers and how they compare.