On Wednesday, UBS adjusted its stance on Rapid7 (NASDAQ:RPD), a cybersecurity firm, by reducing its price target from $70.00 to $65.00, while still recommending the stock as a Buy.
The revision follows Rapid7's first-quarter results for the year 2024, which revealed that the company's Annual Recurring Revenue (ARR) fell short of expectations. The reported ARR for the first quarter was $807 million, which did not meet the UBS estimate and the street's expectation of $817 million.
Rapid7 also revised its full-year 2024 ARR forecast downwards, indicating challenges in customer retention within its cloud security business and legacy vulnerability management (VM) offerings.
Despite these setbacks, the company was able to surpass operating margin expectations with a 20% result in the first quarter and reiterated its full-year operating income and free cash flow (FCF) guidance.
UBS acknowledged the negative impact of another decrease in the ARR guidance but suggested that the lowered expectations for the cloud security business had already been factored into the guidance. The firm also noted that some of the issues leading to the under performance appeared to be self-inflicted and potentially correctable.
The analyst's comments highlighted the current market valuation of Rapid7, with shares trading at approximately 3.1 times the calendar year 2025 enterprise value to sales (EV/S), suggesting that much of the negative sentiment may already be reflected in the stock price. This perspective maintains a positive outlook for the company despite the recent challenges it has faced.
InvestingPro Insights
As Rapid7 navigates through its current challenges, a glance at the real-time data from InvestingPro reveals a company with a market capitalization of $2.85 billion and a revenue growth of 13.52% over the last twelve months as of Q4 2023.
This growth underscores the firm's resilience in generating higher sales despite the hurdles it's encountering. The data also shows a significant EBITDA increase of 126.37% in the same period, which may be indicative of improving operational efficiency.
From an investment standpoint, two InvestingPro Tips stand out: Rapid7 is expected to grow its net income this year, which aligns with UBS's positive stance on the stock. Moreover, analysts predict the company will turn profitable within the year, a potential inflection point for investors watching the bottom line. It is noteworthy that the company does not pay a dividend, signaling that it may be reinvesting earnings back into growth initiatives.
For investors seeking a deeper dive into Rapid7's financial health and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/RPD. To enhance your investing strategy with these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, InvestingPro offers a total of 5 additional tips for Rapid7 that could further inform investment decisions.
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