Reflecting on Consensus

[stenlis]

@PaulWBryant

I’ve had Zscaler as one of my largest positions the last few months, although at least it’s been a single digit allocation (but that’s all I’ll say in my defense). In April at around $170 I thought it looked like a no-brainer . Now at ~$200, maybe there’s not as much upside.

I review the pricing of my holdings monthly. As of 11th of July I got these pricing numbers (obviously CRWD took a beating since):

      Rev.Grw. YoY     2024 Grw.Forcast    P/S
CRWD  36%              29%                 28.95
TTD   28%              24%                 24.18
ZS    37%              32%                 14.70

The market seems to be worried about the big personal turnover so the stock is considerably cheaper than other fast growing SW companies. Them actually beating their FY2024 forecast would wipe all those worries away and their pricing could jump to 20.00 P/S, which would mean a whole lot of upside. Just reaching their forecast should still mean gains for us. If you don’t believe they can reach their forecast, then investing in other companies is obviously a good call.

[stenlis]

@wpr101

Nearly the entire Axon Ethics board resigned after the CEO forced his agenda to equip drones with Tasers. The ethics’ board contention was that an idea like this needed to be considered very carefully. Since that time the company has bought two drone makers and pressed ahead with it’s agenda.

You might have an ethical problem with AXON then, which is fine. I didn’t invest in tobacco companies for ethical reasons. It doesn’t mean it is a bad investment in terms of ROI though.

@wpr101

The company worked with police departments to reclassify deaths from Tasers as Excited delirium - Wikipedia . Here’s how Taser inserts itself into investigations involving its own weapons . Axon works to cover up it’s Taser deaths which are a lot more common that most are aware of, here’s one story of about the estimated number of taser deaths which is almost certainly an under count. For every story of a life saved from a Taser vs gun there are still massive police abuses with these devices. Some examples: one officer was found to have discharged his Taser over 500 times in a short time frame, two officers tased the same person over 50 times killing the person, an officer tased a pregnant woman after she pleaded not to be tased because she was pregnant.

Axon CEO gave lengthy responses to these in a “ask me anything” session on reddit 5 years ago. It’s an interesting read. I remember watching it in real time and it was a PR wonder. He managed to turn a largely hostile crowd to his side with his arguments. Reddit - Please wait for verification

The take away is that Taser is a “less lethal” tool rather than “non lethal” and statistics show that its lethality is lower than any other less lethal tools such as batons.
Axon contests some of the mortician reports claiming Taser as a sole cause of death when it was deployed on suspects that were on drugs and experiencing high psychological stress and physical strain before Taser was applied.
Regarding over use: he acknowledged that is a problem and that Axon is addressing it by including cameras on the device and encouraging strict reviews of the usage.

@wpr101

Axon is known for a toxic and cult like workplace where the CEO encourages people to get tased at work, live on campus, and get tattoos of the Axon logo. The CEO proudly displays his tattoo for media encounters. This is absolutely cringeworthy to me that the leader wants to build loyalty to the company itself like a cult, when realistically companies like this are firing people all the time for various reasons

This is not addressed in the reddit thread as the allegations came out afterwards. However I have seen this time and time again: company gets accused of toxic culture and consequently there is next to no impact on sales in the coming years. As per the article, the accusations date back to 2019 but the company has been executing just fine ever since.

All in all ask yourself whether your police department should decide against using Axon products based on your points:

1. should we decide against buying handheld Tasers because the company also builds drones? Seems like a ridiculous argument to me.
2. Should we not buy them because they do kill people? Well, between using a gun, a baton and grappling, Taser is still the least lethal option so if we want to reduce suspect deaths, we should still buy them.
3. Should we not buy Tasers because there are reports of unsavory corporate culture that the company denies? IDK, it doesn’t seem like a question that even gets asked when deciding between products.

[wpr101]

@stenlis

should we decide against buying handheld Tasers because the company also builds drones? Seems like a ridiculous argument to me.

The first red flag for me on the Drones issue was when they acquired SkyHero, and then told investors they only discovered the company does not meet FAA regulations after the acquisition. How did Axon not know the product did not meet FAA regulations in their due diligence process?

That seems like an issue an ethics board would immediately identify, to ask does this company we are acquiring meet the current regulations to fly. Axon has said they were attempting to repurpose the SkyHero product now since then.

Axon has said the SkyHero acquisition has immaterial revenue but hurts EBITDA. They’ve also told investors they are going to be aggressively making acquisitions, but they first one they made on drones showed they don’t do the most basic of due diligence.

2. Should we not buy them because they do kill people? Well, between using a gun, a baton and grappling, Taser is still the least lethal option so if we want to reduce suspect deaths, we should still buy them.

The article I linked showed they paid medical examiners to reclassify Taser deaths. This was not an independent medical examiner making the call on the classification.

"In the Hernandez-Llach case, Miami-Dade County Associate Medical Examiner Mark Shuman told Reuters he was unaware of the prior relationship between Taser and Miami scientist Mash when he sent the teen’s brain tissue to her lab for tests. Taser paid Mash around $24,000 for expert testimony in eight lawsuits filed from 2005 to 2009, court records show.

Steve Tuttle, Taser’s vice president of communications, said it was not the company’s responsibility to tell Shuman or the police that Taser had paid Mash for expert testimony in lawsuits."

3. Should we not buy Tasers because there are reports of unsavory corporate culture that the company denies? IDK, it doesn’t seem like a question that even gets asked when deciding between products.

I believe this will hurt their hiring practices in the long term. For example here’s a the Hacker News thread on the story I linked. Hacker News is a central hub for tech workers, and a lot of people check up on the reputation of a company before they join. Maybe a reason the compare feels compelled to grow through acquisition rather than through their in house engineering.

Some comments from the thread which I tend to agree with,

I find that the demand for “loyalty” is even more problematic than the tasing or tattooing, to be honest. When anyone stresses “loyalty”, especially to such a degree, that’s an indication that something is very, very wrong with that person or group of people.

It sounds more fratbro than many tech companies.

But this is an opportunity to look at one’s own company, and what stereotypical fratbro influences it’s picked up. Commonplace ones in tech: hazing rituals for negging pledges, bro/class culture fit screening, demonstrations of loyalty, questionable organizational behavior with everyone complicit…

I don’t know what is with companies who pretend that the work environment should be more than an exchange of skills for compensation. Even ignoring these kinds of egregious examples, I find the rah-rah-rah of companies where people are excited to hear the CEO speak to be creepy and weird.

Do you mean the inventors of “Excited Delirium” who paid a bunch of doctors to make up a disease that justifies the use of their product might not be on the up-and-up? ༼ つ ◕_◕ ༽つ

Ah crap, my HN filters are slipping. What I meant was, “oh gosh, bad apples, the truth is in the middle, etc”.

I’m not sure why this is at the bottom. There’s sarcasm and exaggeration, but it’s a very legitimate point. [edit: ok, no longer gray and at the bottom.]

Read through the wikipedia page[0] on how it’s not recognized by most medical associations.

a specialist in investigating deaths in custody, describes excited delirium as “a boutique kind of diagnosis created, unfortunately, by many of my forensic pathology colleagues specifically for persons dying when being restrained by law enforcement.”

Or a deeper Reuters investigation[1] on how closely the diagnosis and acceptance of the “condition” is tied to police and taser manufacturers, Axon specifically. Cmd+F “Mash” will jump you to the parts where they’re paying the medical examiner who also happens to diagnose these deaths as exited delirium.

These are some of the general impressions the tech community is expressing about the company. None of the other companies I am investing in have this type of poor press about their company culture. The numbers on this business are not so spectacular that I would overlook these issues I mentioned.

---

Ironically when I first joined Motley Fool and Rule Breakers, TASR (now AXON) was the most popular and consensus pick to do well. I lost a significant percentage in the investment and that is still biasing me against the company today. The same CEO did an extremely poor job managing expenses in this ~2006 time frame.

[stenlis]

@wpr101

The first red flag for me on the Drones issue was when they acquired SkyHero, and then told investors they only discovered the company does not meet FAA regulations after the acquisition. How did Axon not know the product did not meet FAA regulations in their due diligence process?

That seems like an issue an ethics board would immediately identify, to ask does this company we are acquiring meet the current regulations to fly. Axon has said they were attempting to repurpose the SkyHero product now since then.

Axon has said the SkyHero acquisition has immaterial revenue but hurts EBITDA. They’ve also told investors they are going to be aggressively making acquisitions, but they first one they made on drones showed they don’t do the most basic of due diligence.

I don’t think any of this would change a PD’s decision to buy handheld Taser’s.

But you seem to make a new argument that was not in your previous post. Namely that Axon is making bad acquisitions that are hurting their numbers.

Well, Axon has made 8 acquisitions since 2015 and has still grown just fine. I can imagine trying to invent drones with less lethal capabilities eats into their earnings in general. But their EBITDA trippled YoY to $179 mil. last quarter. Clearly this acquisition is not hurting them that much.

@wpr101

The article I linked showed they paid medical examiners to reclassify Taser deaths.

That is not what the article is showing at all. They paid for expert testimony in a court case. Virtually all expert testimonies are paid for. Expertise has a price. But just because you pay an expert doesn’t mean they are ready to perjure themselves and go to jail for you.

@wpr101

I believe this will hurt their hiring practices in the long term

When do you think this “hurt” is supposed to start making a difference? The accusations in the article are from 2019 and imply this behavior has been typical for years before that? If it did not make a difference in 5 to 10 years why should it matter now?

All in all you are talking about long standing issues like 5 years worth of acquisitions or 5 years worth of corporate culture and nothing seems to impact their top or bottom lines in that time span.

[wpr101]

@stenlis

But you seem to make a new argument that was not in your previous post. Namely that Axon is making bad acquisitions that are hurting their numbers.

I’m curious your take how you can view the SkyHero acquisition as a good acquisition if Axon did not find out the drones can not legally fly due to FAA regulations? Doesn’t that seem like one of the most basic questions that Axon should have been asking at the start of the acquisition process when they engaged SkyHero?

It was mentioned above that what I wrote about was subjective. What’s not subjective is,

1. The ethics board resigned after the CEO proposed to create autonomous drones which would tase people without any human controller
2. Axon shortly there after acquired SkyHero which didn’t meet the very basic regulations to be able to legally fly in the United States, in part because the drone was too autonomous

I see the resigning of the ethics board and the poor acquisition of SkyHero as connected, because checking on what regulations the company has should have been one of the first questions asked. Why did Axon never check if SkyHero has FAA clearance to fly their product?

[stenlis]

@wpr101

It was mentioned above that what I wrote about was subjective. What’s not subjective is,

1. The ethics board resigned after the CEO proposed to create autonomous drones which would tase people without any human controller
2. Axon shortly there after acquired SkyHero which didn’t meet the very basic regulations to be able to legally fly in the United States, in part because the drone was too autonomous

These are two separate issues. The ethics board had issues with the development of any armed drones and had resigned when Smith announced that he would develop them. It’s not the case that the board would have been fine with Smith acquiring a different drone company. See the full resignation statement of the board.

And if this is an ethical issue for you as well, don’t invest in Axon. But the question whether it’s ethical is different from whether it’s profitable.

@wpr101

I’m curious your take how you can view the SkyHero acquisition as a good acquisition if Axon did not find out the drones can not legally fly due to FAA regulations? Doesn’t that seem like one of the most basic questions that Axon should have been asking at the start of the acquisition process when they engaged SkyHero?

I do not know. Very little has been disclosed about the terms of the acquisition and about SkyHero financials. The only number reported was that SkyHero had 9 employees when it was acquired.

For all I know it might have been a poor acquisition and Axon might have saved themselve $20M in cash and another $5M in EBITDA had they not acquired them (fictional numbers). But even with those losses they had performed exceptionally well in the last year.

Edit: I looked at SkyHero drones and these two jumped up:

The Loki MkII is the most incredible indoor small tactical UAV system in the world, fully purpose built for close quarter, under roof, tactical scouting missions.

and

Typhon’s sound distraction payload provides the operator with 5 single shots or a 5 rounds salvo; each measured at 165+Db and assists with tactical entry, quick deployements, …

Seems like a good fit for what Axon is trying to achieve. Honestly, getting FAA approval does not sound like an insurmountable problem. There are thousands of drones that had gotten it.