Rapid7 (NASDAQ:RPD) Q3 Sales Beat Estimates, Stock Soars

Adam Hejl /
2021/11/03 4:23 pm EDT
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Cybersecurity software maker Rapid7 (NASDAQ:RPD) reported Q3 FY2021 results that beat analyst expectations, with revenue up 33.1% year on year to $139.8 million. Guidance for next quarter's revenue was $145.7 million at the midpoint, which is 1.02% above the analyst consensus. Rapid7 made a GAAP loss of $37.7 million, down on its loss of $25.5 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) Q3 FY2021 Highlights:

  • Revenue: $139.8 million vs analyst estimates of $134.1 million (4.28% beat)
  • EPS (non-GAAP): -$0.18 vs analyst estimates of -$0.07 ($0.11 miss)
  • Revenue guidance for Q4 2021 is $145.7 million at the midpoint, above analyst estimates of $144.2 million
  • Free cash flow of $14.3 million, up 184% from previous quarter
  • Customers: 9,909, up from 9,315 in previous quarter
  • Gross Margin (GAAP): 68.9%, down from 70.4% same quarter last year

“Rapid7 delivered milestone results during the third quarter as we ended the period with $550 million in ARR, growth of 38% over the prior year. This performance was driven by accelerating demand for our security transformation solutions and sustained growth in vulnerability management, coupled with our recent acquisition of IntSights,” 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.

As technology penetrates our lives, almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. The migration of businesses to the cloud and employees working remotely in insecure environments are also contributing to increasing demand for cybersecurity software.

Sales Growth

As you can see below, Rapid7's revenue growth has been strong over the last year, growing from quarterly revenue of $105 million, to $139.8 million.

Rapid7 Total Revenue

This was a standout quarter for Rapid7, with the quarterly revenue up an absolutely stunning 33.1% year on year, which is above average for the company. On top of that, revenue increased $13.4 million quarter on quarter, a very strong improvement on the $8.97 million increase in Q2 2021, and a sign of re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 22.7% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than Rapid7. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Customer Growth

You can see below that Rapid7 reported 9,909 customers at the end of the quarter, an increase of 594 on last quarter. That is quite a bit better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well. 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 Q3 Results

With a market capitalization of $6.86 billion Rapid7 is among smaller companies, but its more than $304.2 million in cash and positive free cash flow over the last twelve months give us confidence that Rapid7 has the resources it needs to pursue a high growth business strategy.

We were very impressed by Rapid7’s very strong acceleration in customer growth this quarter. And we were also excited to see the really strong revenue growth. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 5.14% on the results and currently trades at $135 per share.

Should you invest in Rapid7 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.