Cybersecurity software maker Rapid7 (NASDAQ: RPD) announced better-than-expected revenue in Q1 CY2025, with sales up 2.5% year on year to $210.3 million. On the other hand, next quarter’s revenue guidance of $212 million was less impressive, coming in 0.7% below analysts’ estimates. Its non-GAAP profit of $0.49 per share was 42.2% above analysts’ consensus estimates.
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Rapid7 (RPD) Q1 CY2025 Highlights:
- Revenue: $210.3 million vs analyst estimates of $208 million (2.5% year-on-year growth, 1.1% beat)
- Adjusted EPS: $0.49 vs analyst estimates of $0.34 (42.2% beat)
- Adjusted Operating Income: $32.35 million vs analyst estimates of $24.01 million (15.4% margin, 34.7% beat)
- The company dropped its revenue guidance for the full year to $858 million at the midpoint from $865 million, a 0.8% decrease
- Management raised its full-year Adjusted EPS guidance to $1.85 at the midpoint, a 3.4% increase
- Operating Margin: 0%, down from 4.7% in the same quarter last year
- Free Cash Flow Margin: 11.7%, down from 27.2% in the previous quarter
- Customers: 11,685, down from 11,727 in the previous quarter
- Annual Recurring Revenue: $837.2 million at quarter end, up 3.7% year on year
- Market Capitalization: $1.60 billion
“We had a slower start to 2025 than anticipated however we have a clear strategy and strong conviction in our long-term opportunity,” said Corey Thomas, Chairman and CEO of Rapid7.
Company Overview
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.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Rapid7 grew its sales at a 13.9% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.
This quarter, Rapid7 reported modest year-on-year revenue growth of 2.5% but beat Wall Street’s estimates by 1.1%. Company management is currently guiding for a 1.9% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 3% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.
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Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Rapid7’s ARR came in at $837.2 million in Q1, and over the last four quarters, its growth was underwhelming as it averaged 5.6% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in securing longer-term commitments. 
Customer Base
Rapid7 reported 11,685 customers at the end of the quarter, a sequential decrease of 42. That’s worse than what we’ve observed previously, and we’ve no doubt shareholders would like to see the company accelerate its sales momentum.
Key Takeaways from Rapid7’s Q1 Results
We were impressed by how significantly Rapid7 blew past analysts’ EBITDA expectations this quarter. We were also glad its EPS guidance for next quarter exceeded Wall Street’s estimates. On the other hand, its customer growth slowed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 2% to $27.25 immediately after reporting.
Is Rapid7 an attractive investment opportunity right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
