Rapid7's 85% Decline Offers a Small Opportunity in Cybersecurity

Rapid7's shares have fallen 85% from their all-time high in 2021 due to rapidly decelerating top-line growth in a highly valued industry. However, the company's fundamentals remain strong, with a robust product portfolio and expanding customer base. Despite the challenges, Rapid7 is well-positioned for long-term growth and presents a small opportunity for investors.

Rapid7, Inc. (NASDAQ: RPD), a Boston-based cybersecurity software and service provider, has seen its stock price plummet 85% from its all-time high in 2021. This significant decline is attributed to rapidly decelerating top-line growth in a highly competitive and valued industry. However, despite the challenges, Rapid7's fundamentals remain strong, with a robust product portfolio and an expanding customer base. This article explores the company's recent performance and evaluates its potential for long-term growth.

Company Overview

Rapid7, Inc. was founded in 2000 and went public in 2015, raising $107.3 million. The company offers cloud-based subscription services, managed services products, and licensed on-premise software, serving 11,643 customers in 151 countries, including 40% of the Fortune 100. Rapid7's Command Platform, launched in 2024, provides a unified view of vulnerabilities, exposures, and threats, enabling better threat detection and risk remediation.

Industry Context

The cybersecurity industry, valued at $54 billion, includes Managed Security Services ($18 billion), Managed Detection & Response (MDR) ($21 billion), and Exposure Management ($16 billion). Rapid7 participates in the latter two segments, focusing on MDR as its engine of future growth. The industry is highly competitive, with companies like Expel, Sophos, CrowdStrike (CRWD), Microsoft (MSFT), Palo Alto Networks (PANW), and Qualys (QLYS) enjoying significant market presence.

Financial Performance

Rapid7's stock price has fallen from $145 in 2021 to around $20 in 2025, reflecting a significant decline in valuation. The company's revenue growth slowed from 30% in FY21 to 14% in FY23 and 9% in FY24. In FY24, Rapid7 earned $2.28 per share (non-GAAP) and Adj. EBITDA of $188.5 million on revenue of $844.0 million. Despite the slowdown, the company's balance sheet remains strong, with cash and investments of $599.7 million against debt of $890.3 million, resulting in a net leverage of 1.6.

Activist Investor Involvement

Activist investor Jana Partners took a 13% economic interest in Rapid7, aiming to effectuate a sale as a remedy for poor operational execution, forecasting, and investor communication. However, when buyers could not be lined up, the focus returned to performance, and the share price decline continued.

Recent Developments

In Q2 '24, Rapid7 reported earnings of $0.58 per share (non-GAAP) and Adj. EBITDA of $42.6 million on revenue of $214.2 million. The company revised its FY25 forecast to non-GAAP earnings of $1.97 per share on revenue of $858 million and ARR of $858 million. Rapid7 also announced the retirement of its CFO and the hiring of a new Chief Commercial Officer. The market reacted negatively to the lower ARR metric, selling shares of RPD down 10% to $17.88, but they have since rebounded.

Analyst Sentiment

Sell-side analysts are mostly negative on Rapid7's prospects. On average, they expect the firm to earn $1.97 per share (non-GAAP) on revenue of $859 million in FY25, followed by $2.01 per share (non-GAAP) on revenue of $886 million in FY26. Despite the challenges, Rapid7's P/E of 10 on FY26E non-GAAP EPS and EV/TTM Adj. EBITDA of 9 suggest potential upside.

Conclusion

Rapid7's shares have fallen 85% from their all-time high due to rapidly decelerating top-line growth in a highly competitive industry. However, the company's fundamentals remain strong, with a robust product portfolio and an expanding customer base. Despite the challenges, Rapid7 is well-positioned for long-term growth, presenting a small opportunity for investors.

References

A Small Opportunity In Rapid7^[1] https://seekingalpha.com/article/4825577-a-small-opportunity-in-rapid7
3 of Wall Street’s Favorite Stocks with Open Questions^[2] https://finance.yahoo.com/news/3-wall-street-favorite-stocks-043933831.html