Rapid7 (NASDAQ:RPD) Posts Better-Than-Expected Sales In Q4 But Full Year Guidance Underwhelms

Petr Huřťák /
2023/02/08 4:11 pm EST

Cybersecurity software maker Rapid7 (NASDAQ:RPD) beat analyst expectations in Q4 FY2022 quarter, with revenue up 21.7% year on year to $184.5 million. However, guidance for the next quarter was less impressive, coming in at $181 million at the midpoint, being 1.91% below analyst estimates. Rapid7 made a GAAP loss of $11.4 million, improving on its loss of $44.6 million, in the same quarter last year.

Is now the time to buy Rapid7? Access our full analysis of the earnings results here, it's free.

Rapid7 (RPD) Q4 FY2022 Highlights:

  • Revenue: $184.5 million vs analyst estimates of $179.6 million (2.72% beat)
  • EPS (non-GAAP): $0.07 vs analyst estimates of $0.18 (-$0.11 miss)
  • Revenue guidance for Q1 2023 is $181 million at the midpoint, below analyst estimates of $184.5 million
  • Management's revenue guidance for upcoming financial year 2023 is $774.5 million at the midpoint, missing analyst estimates by 2.22% and predicting 13.1% growth (vs 28.4% in FY2022)
  • Free cash flow of $28.5 million, up 195% from previous quarter
  • Customers: 10,929, up from 10,791 in previous quarter
  • Gross Margin (GAAP): 70.2%, up from 67.1% same quarter last year

“Rapid7 ended the year with revenue, operating profit, and free cash flow that exceeded our targeted ranges. Amidst an evolving economic landscape, we see customers continuing to expand their wallet share around our leading Insight platform, with ARR per customer growing double-digits from the prior year,” said Corey Thomas, Chairman and CEO of Rapid7.

Founded 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.

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

As you can see below, Rapid7's revenue growth has been strong over the last two years, growing from quarterly revenue of $113.2 million in Q4 FY2020, to $184.5 million.

Rapid7 Total Revenue

This quarter, Rapid7's quarterly revenue was once again up a very solid 21.7% year on year. Quarter on quarter the revenue increased by $8.71 million in Q4, which was in line with Q3 2022. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.

Guidance for the next quarter indicates Rapid7 is expecting revenue to grow 15% year on year to $181 million, slowing down from the 34% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $774.5 million at the midpoint, growing 13.1% compared to 28% increase in FY2022.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Rapid7 reported 10,929 customers at the end of the quarter, an increase of 138 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit. Rapid7 updated its customer count methodology in Q1 2021, which is the reason for the related drop in the number of customers.

Rapid7 Customers

Key Takeaways from Rapid7's Q4 Results

With a market capitalization of $3.04 billion Rapid7 is among smaller companies, but its more than $291.4 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see Rapid7 outperform Wall St’s revenue expectations this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was unfortunate to see that Rapid7's revenue guidance for the full year missed analysts' expectations and it indicates quite a significant slowdown in growth. Overall, this quarter's results were not the best we've seen from Rapid7. The company is so far flat on the results and currently trades at $51.47 per share.

Rapid7 may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.