Posted on Tuesday, Sep 11th 2018
A recent Markets and Markets report estimates the global Cybersecurity Market to grow at a CAGR of 11% from $137.85 billion in 2017 to $231.94 billion by 2022, driven by regulatory data protection directives and the need to counter cyber terrorism, coupled with the growing adoption of Internet of Things (IoT) and Bring Your Own Device (BYOD) trends. Billion Dollar Unicorn Rapid7 (Nasdaq: RPD) is counting on this high growth in the industry.
Boston-based Rapid7 was founded in 2000 by serial entrepreneur Alan Matthews, Tas Giakouminakis, and Chad Loder with the objective of providing a comprehensive security solution for organizations that would help manage security across the entire IT environment of network, hardware, software, web, and database components. Since being founded, it has become a leading provider of security data and analytics solutions.
Rapid7 was venture funded till 2015. It had raised $89 million from investors including Bain Capital Ventures and Technology Crossover Ventures. In 2015, the company listed by raising $103.2 million at a pre-trading valuation of $605 million. The stock has seen robust growth ever since.
Last month, Rapid7 reported its second quarter results that surpassed market expectations. Revenues for the quarter grew 23% to $58.4 million, ahead of the Street’s forecast of $55.2 million. While the growth is impressive, it is slowing down constantly. Revenue growth has slowed from 42% in 2016 to 28% in 2017 to 23% in the most recent quarter. During the quarter, Rapid7 reported an operating loss of $0.31 per share, or $14.34 million. On an adjusted basis, it recorded a loss of $0.13 per share, better than the market’s forecast of a loss of $0.18 per share.
By segment, revenues from products came in at $39 million, maintenance and support revenues brought in $10.6 million, and professional services segment delivered $8.8 million for the quarter.
For the current quarter, Rapid7 expects revenues of $58.6-$60 million. It expects to end the current year with revenues of $237-$240 million and a net loss of $0.52-$0.45 per share. The Street has forecast revenues of $238.9 million with a net loss of $0.49 for the year.
Rapid7’s Future Plans
Rapid7 has been driving product expansion through integration with key cloud services. Recently, it announced integration between its Insight platform and Microsoft Azure. The integration will provide vulnerability management, analytics-driven incident detection for hybrid environments, and simplified agent deployment within the Azure infrastructure. Post the integration, Rapid7 customers that utilize Azure will be able to leverage InsightVM and InsightIDR to gain increased visibility into security vulnerability and attacks within their cloud and hybrid environments.
Besides product enhancement, Rapid7 is also driving international expansion. Earlier last quarter, it announced local instances of its cloud-based Insight Platform for Australia and Canada. The expansion will help its customers in these two countries to address data governance requirements and give them the flexibility to keep security data local.
Rapid7 is working on managing its profitability. It has been spending heavily on R&D and sales and marketing expenses to grow its market, causing the erosion of margins. During the reported quarter, R&D spend grew 35% over the year to $16 million and sales and marketing spend grew 14% over the year to $31.2 million. But it hopes to address the issue in the coming year. To help mitigate losses, Rapid7 is focusing on leveraging the expansion of its SecOps portfolio to keep driving new customer growth and cross-selling into its existing customer base. It is also focusing on improving the average revenue per customer by focusing on more strategic services relationships. Rapid7 is targeting generation of operating cash flow for the current fiscal year and profits in the next fiscal.
I would like to know from the users how they select a cyber security vendor. How does Rapid7 score over other similar service providers like FireEye? Also would you rather go with big names like IBM to manage all of your security needs or with smaller players like Rapid7?
The market is hopeful that Rapid7 will deliver on its profit promise. Its stock is trading at $37.32 with a market capitalization of $1.8 billion. It had peaked to a record high of $39.10 earlier last week. It has been steadily climbing from its 52-week low of $16.59 in September last year.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.
This segment is a part in the series : Billion Dollar Unicorns
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