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Cybersecurity software maker Rapid7 (NASDAQ:RPD) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 8% year on year to $214.7 million. The company expects next quarter’s revenue to be around $212 million, close to analysts’ estimates. Its non-GAAP profit of $0.66 per share was also 27.6% above analysts’ consensus estimates.
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Rapid7 (RPD) Q3 CY2024 Highlights:
- Revenue: $214.7 million vs analyst estimates of $210.1 million (2.2% beat)
- Adjusted EPS: $0.66 vs analyst estimates of $0.52 (27.6% beat)
- EBITDA: $50.08 million vs analyst estimates of $42.83 million (16.9% beat)
- Revenue Guidance for Q4 CY2024 is $212 million at the midpoint, roughly in line with what analysts were expecting
- Management raised its full-year Adjusted EPS guidance to $2.30 at the midpoint, a 5.5% increase
- Gross Margin (GAAP): 70.6%, in line with the same quarter last year
- Operating Margin: 6.5%, up from -8.1% in the same quarter last year
- EBITDA Margin: 23.3%, up from 21.6% in the same quarter last year
- Free Cash Flow Margin: 17.9%, up from 14% in the previous quarter
- Annual Recurring Revenue: $823.1 million at quarter end, up 6% year on year
- Customers: 11,619, up from 11,484 in the previous quarter
- Market Capitalization: $2.52 billion
Company OverviewFounded in 2000 with the idea that network security comes before endpoint security, Rapid7 (NASDAQ:RPD) provides software as a service that helps companies understand where they are exposed to cyber security risks, quickly detect breaches and respond to them.
Vulnerability Management
The demand for cybersecurity is growing as more and more businesses are moving their data and processes into the cloud, which along with a major increase in employees working remotely, has increased their exposure to attacks and malware. Additionally, the growing array of corporate IT systems, applications and internet connected devices has increased the complexity of network security, all of which has substantially increased the demand for software meant to protect data breaches.Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Rapid7’s 18.8% annualized revenue growth over the last three years was mediocre.This quarter, Rapid7 reported year-on-year revenue growth of 8%, and its $214.7 million of revenue exceeded Wall Street’s estimates by 2.2%. Management is currently guiding for a 3.3% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.8% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates the market believes its products and services will face some demand challenges.
Annual Recurring Revenue
Investors interested in Rapid7 should track its annual recurring revenue (ARR) in addition to reported revenue. While reported revenue for a SaaS company can include low-margin items like implementation fees, ARR is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.Over the last year, Rapid7’s ARR growth has slightly underperformed the sector, averaging 9.6% year-on-year increases and coming in at $823.1 million in the latest quarter. This performance mirrored its revenue and suggests there may be increasing competition that is causing challenges in securing longer-term commitments.