Rapid7 Counts On Acquisitions for Growth

According to a recent ResearchAndMarkets report, the global security and vulnerability management market is expected to grow to $14.7 billion by the year 2024. Organizations of all sizes are expected toincrease their focus on preventing security attacks instead of waiting for system flaws to catch them off guard. Boston-based Rapid7 (Nasdaq: RPD) is a leading security solutions provider that recently announced its first quarter results that surpassed market expectations for the fourth consecutive quarter.

Rapid7’s Financials

Rapid7’s revenues for the quarter grew 34% over the year to $73.2 million, significantly ahead of the market’s expectations of $69.85 million. For the quarter, it reported GAAP loss from operations of $9.7 million and non-GAAP income from operations of $0.6 million. Non GAAP EPS came in at $0.02 compared with the loss of $0.08 per share forecast by the market.

By segment, revenues from products grew 60% to $56.3 million, maintenance and support revenues fell 11% to $9.6 million, and professional services revenues declined 13% to $7.3 million for the quarter.

For the current quarter, Rapid7 forecast revenues of $74.3-$75.9 million with a loss of $0.08-$0.06 per share. It expects to end the year with revenues of $312-$318 million with an EPS of $0.05. The market was looking for revenues of $73.7 million with a loss of $0.01 per share for the quarter and revenues of $308.6 million with an EPS of $0.05 for the year.

Rapid7’s Growth Focus

Rapid7 has been focused on three key goals – drive growth, simplify customer adoption, and improve leverage in its financial model. During the quarter, it continued to deliver on these goals through product innovation and acquisitions. Recently, it announced that it had achieved the Amazon Web Services (AWS) Security Competency status for its InsightVM solution. The status recognizes Rapid7’s proven technology and expertise and will help Rapid7 differentiate itself as an AWS Partner Network member that offers specialized software to handle complex security projects on AWS.

It is also keeping an eye on its financial performance, and during the quarter managed to deliver a non GAAP operating profit of $0.6 million. The management feels confident in the path to profitability, but intends to continue investing for growth.

Rapid7’s Acquisitions

Rapid7 continues to grow its footprint through acquisitions. Earlier last month, it announced the acquisition of Ireland-based NetFort for $15 million. NetFort was founded in 2002 to develop network traffic and security monitoring software. Its flagship product LANGuardian analyzes network traffic and leverages deep packet inspection techniques to provide deep visibility into network events. Using LANGuardian, organizations can manage file sharing, conduct network forensics, and monitor internet activity over its network.

Rapid7 plans to integrate these capabilities into its Insight cloud offering. Post the integration, Rapid7 will be able to consolidate more data and analytics into a single platform for security and IT professionals and thus improve the ability to detect attacks, investigate incidents, and gain increased visibility into devices that pose a risk to organizations. Rapid7 is counting on leveraging NetFort’s technology to broaden its data collection capabilities so as to accelerate its expansion into the enterprise segment for InsightIDR.

NetFort’s funding and financial details are not disclosed. Owler estimates that the company is trending at annual revenue run rate of $3 million. Rapid7 indicated that the acquisition would not have a material impact on its annualized revenue growth, revenue and non-GAAP operating and net income for this year.

The security industry is dotted with several players. Like its competitors Qualys and Carbon Black, Rapid7 is also focusing on growing by acquiring the smaller companies in the industry. Qualys has been improving its vulnerability management offering through acquisitions of bootstrapped and capital efficient firms such as Adya. Carbon Black has focused on the endpoint security system and acquired smaller companies that complement its offering by adding capabilities such as visualization and analytics. Then there is Tenable, that has built a Cyber Exposure platform that arms Security teams with the visibility to see their entire cyber attack surface at all times. Tenable hasn’t made many acquisitions, and is counting on product innovation to drive growth. 

But there are several other bigger players like IBM and Splunk that have access to far more capital and scale. Companies like Splunk have managed to grow in the industry through acquisitions, a robust partner network, and a dedicated platform strategy. But there are also others like FireEye who have struggled in the recent past to grow despite product innovation. Rapid7 will need to continue to drive growth both organically and inorganically to stay relevant in the market.

The market is pleased with its performance. Its stock is trading at $52.02 with a market capitalization of $2.5 billion. It had peaked to a record high of $57 last month near result announcement. The stock had fallen to a 52-week low of $26.27 in November last year.