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Rapid7 (NASDAQ:RPD) Surprises With Q2 Sales But Next Quarter Guidance Underwhelms


Kayode Omotosho /
2022/08/03 4:29 pm EDT
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Cybersecurity software maker Rapid7 (NASDAQ:RPD) announced better-than-expected results in the Q2 FY2022 quarter, with revenue up 32.4% year on year to $167.4 million. However, guidance for the next quarter was less impressive, coming in at $176 million at the midpoint, being 0.89% below analyst estimates. Rapid7 made a GAAP loss of $39.6 million, down on its loss of $34.1 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) Q2 FY2022 Highlights:

  • Revenue: $167.4 million vs analyst estimates of $164.1 million (2.02% beat)
  • EPS (non-GAAP): -$0.01 vs analyst estimates of -$0.04
  • Revenue guidance for Q3 2022 is $176 million at the midpoint, below analyst estimates of $177.5 million
  • The company reconfirmed revenue guidance for the full year, at $688 million at the midpoint
  • Free cash flow was negative $1.25 million, down from positive free cash flow of $3.82 million in previous quarter
  • Customers: 10,624, up from 10,407 in previous quarter
  • Gross Margin (GAAP): 67.5%, down from 68.9% same quarter last year

“Robust customer demand for our security transformation solutions drove second quarter ending ARR of $658 million, representing growth of 35% year-over-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 very strong over the last year, growing from quarterly revenue of $126.4 million, to $167.4 million.

Rapid7 Total Revenue

And unsurprisingly, this was another great quarter for Rapid7 with revenue up 32.4% year on year. On top of that, revenue increased $10 million quarter on quarter, a very strong improvement on the $5.74 million increase in Q1 2022, and a sign of acceleration of growth.

Guidance for the next quarter indicates Rapid7 is expecting revenue to grow 25.8% year on year to $176 million, slowing down from the 33.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 23.9% over the next twelve months.

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 10,624 customers at the end of the quarter, an increase of 217 on last quarter. That is a little better customer growth than last quarter but while it is still a bit below what we have typically seen over the last year, it is suggesting that the company may be reinvigorating growth. 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 Q2 Results

With a market capitalization of $3.96 billion Rapid7 is among smaller companies, but its more than $239.7 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 impressed by Rapid7’s acceleration in customer growth this quarter. And we were also excited to see the really strong revenue growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 3% on the results and currently trades at $69.62 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.