Rapid7's (NASDAQ:RPD) Q3 Earnings Results: Revenue In Line With Expectations, Stock Soars

Kayode Omotosho /
2023/11/01 4:28 pm EDT

Cybersecurity software maker Rapid7 (NASDAQ:RPD) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 13.1% year on year to $198.8 million. The company also expects next quarter's revenue to be around $201 million, slightly below analysts' estimates. Turning to EPS, Rapid7 made a GAAP loss of $1.25 per share, down from its loss of $0.49 per share in the same quarter last year.

Is now the time to buy Rapid7? Find out in our full research report.

Rapid7 (RPD) Q3 FY2023 Highlights:

  • Revenue: $198.8 million vs analyst estimates of $197.1 million (0.89% beat)
  • EPS (non-GAAP): $0.50 vs analyst estimates of $0.42 (18.8% beat)
  • Revenue Guidance for Q4 2023 is $201 million at the midpoint, below analyst estimates of $203 million
  • Free Cash Flow was -$582 thousand, down from $25.6 million in the previous quarter
  • Customers: 11,412, up from 11,287 in the previous quarter (in line)
  • Gross Margin (GAAP): 70.9%, up from 69.4% in the same quarter last year

“Rapid7 ended the third quarter with $777 million in ARR, driven by strong customer traction and momentum around our consolidated offerings for risk and threat management, which contributed over 40% of new business during the quarter,” 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.

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

As you can see below, Rapid7's revenue growth has been strong over the last two years, growing from $139.9 million in Q3 FY2021 to $198.8 million this quarter.

Rapid7 Total Revenue

This quarter, Rapid7's quarterly revenue was once again up 13.1% year on year. We can see that Rapid7's revenue increased by $8.42 million in Q3, up from $7.25 million in Q2 2023. While we've no doubt some investors were looking for higher growth, it's good to see that quarterly revenue is re-accelerating.

Next quarter's guidance suggests that Rapid7 is expecting revenue to grow 8.96% year on year to $201 million, slowing down from the 21.7% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 11.5% over the next 12 months before the earnings results announcement.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. See it here.

Customer Growth

Rapid7 reported 11,412 customers at the end of the quarter, an increase of 125 from the previous quarter. That's a little slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing. 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 $2.83 billion, Rapid7 is among smaller companies, but its $322.2 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

Revenue beat slightly and operating profit beat more convincingly. It was also good to see Rapid7 improve its gross margin this quarter. On the other hand, its revenue guidance for next quarter underwhelmed, although operating profit guidance was better. Full year guidance was in line for revenue and ahead for operating profit. Overall, this was a mixed quarter for Rapid7, but there were no major surprises, and the company is staying on track. The stock is up 1.92% after reporting and currently trades at $46.79 per share.

Rapid7 may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here.

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 50% 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 in this report.