What Happened:
Shares of cybersecurity software maker Rapid7 (NASDAQ:RPD) jumped 5.47% in the morning session after the company reported second quarter results that surpassed Wall Street's expectations for revenue, adjusted EBITDA, free cash flow and earnings per share (EPS). ARR (annual recurring revenue) was roughly in line, while customer growth was strong and a little better than last quarter.
In addition, the company announced a restructuring plan on August 7, 2023, to enhance operational efficiency and trim operating expenses. This includes a workforce reduction of around 18%, the costs of which will impact Q3 and Q4. Management added that "In addition to enabling a higher quality customer experience, we expect the net results of these optimizations will support growth in the business while allowing us to double free cash flow in 2024." This free cash flow commentary is a major positive.
Moving ahead, revenue guidance for the next quarter and the full year came in inline with Consensus. Both the full year revenue and ARR guidance were slightly lowered, partly due to lower professional services revenue, as a result of the company's restructuring plans. Professional services revenue is less of a focus because of its non-recurring and low-margin nature, so the market isn't overly concerned on this front. Overall, it was a good quarter for the company given the beats across key operating metrics and the impending increase in profitability and cash flows.
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What is the market telling us:
Rapid7's shares are very volatile and over the last year have had 39 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move was four months ago, when the stock gained 6.87% on the news that the company's board may have picked a preferred bidder amid takeover chatter. In January, Reuters reported that the company was in the early stages of considering a potential sale and had sought Goldman Sachs for guidance.
Rapid7 is up 31.5% since the beginning of the year, but at $45.96 per share it is still trading 34.7% below its 52-week high of $70.36 from August 2022. Investors who bought $1,000 worth of Rapid7's shares 5 years ago would now be looking at an investment worth $1,400.
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