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On Tuesday, Piper Sandler adjusted its outlook on Rapid7 (NASDAQ:RPD) shares, reducing the price target from $35.00 to $30.00 while maintaining a Neutral rating. The firm’s analyst cited a sequential decline in Annual Recurring Revenue (ARR) as a key factor for the adjustment. With a market capitalization of $1.7 billion and trading at 66 times earnings, InvestingPro analysis suggests the stock is currently slightly undervalued. Rapid7’s first-quarter ARR fell short of market expectations by $4 million, which also marked a sequential decline. The miss was attributed to the deferral of several large deals and the impact of macroeconomic uncertainties on midmarket customers.
The lowered expectations for the company’s full-year revenue were set against a backdrop of a reaffirmed operating income guidance. Despite the less-than-expected performance, the analyst found reasons for optimism within Rapid7’s detection and response business, which experienced mid-teens growth and accounts for over half of the business mix. InvestingPro data shows the company has achieved 6.19% revenue growth over the last twelve months, with a strong 11.09% return over the past week. The potential for an upgrade cycle among vulnerability management (VM) customers transitioning to broader exposure management solutions was also noted as a positive sign.
The analyst’s commentary highlighted the challenges facing Rapid7’s core VM business, stressing the significance of capitalizing on exposure management opportunities to drive future growth. While the stability in the detection and response (D&R) business was seen as a positive, it was not considered sufficient to prompt a significant change in the company’s trajectory on its own.
The opportunity for Rapid7 to advance was acknowledged, but the recent performance combined with ongoing macroeconomic concerns has led to a cautious stance from Piper Sandler. The path forward for Rapid7 appears clouded by these factors, resulting in the decision to maintain a Neutral rating at the revised price target.
In other recent news, Rapid7, Inc. reported first-quarter earnings that exceeded analyst expectations, with adjusted earnings per share reaching $0.43 compared to the forecasted $0.34. The company’s revenue rose 3% year-over-year to $210.25 million, surpassing the projected $208.24 million. Despite these positive results, Rapid7’s guidance for the remainder of the year fell short of estimates, which affected investor sentiment. For the second quarter, the company anticipates revenue between $211 million and $213 million, indicating a modest 1-2% year-over-year growth. Additionally, Rapid7 forecasts full-year 2025 revenue to be in the range of $853 million to $863 million, also reflecting 1-2% growth. The company’s annualized recurring revenue grew by 4% year-over-year to $837 million, with projections for full-year ARR of $850 million to $880 million, suggesting 1-5% growth. Rapid7 remains committed to operational discipline, with a forecasted free cash flow of $125 million to $135 million for 2025. The company has recently expanded its cybersecurity offerings and announced plans to open a global capacity center in India to support its growth initiatives.
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