In the past couple of months, coverage of the shares of this cybersecurity stock was initiated at Mizuho, with a ‘Buy’ rating, and the shares were upgraded at Macquarie, to ‘Outperform’; at Raymond James, to ‘Strong Buy’; and BTIG Research, to ‘Buy’.
Rapid7, Inc. (RPD)
From Cabot Stock of the Week
Cybersecurity is one of the leading sectors of this new bull market, but the best performers in that space have been lesser-known names that are built from the ground up for the new age of threats. Rapid7, Inc. (RPD) looks like one that’s well-positioned to thrive as corporations look to ensure that their data is seen only by people who are authorized to see it.
The company’s popularity stems from its Insight platform, which, at its core, allows clients to easily unify their data from across their various systems and IT infrastructure and then detect attackers, manage risk, secure applications, automate a variety of security checks and actions and even leverage experts (consulting services) if need be. It sounds relatively simply—and it is—and it’s led to excellent and steady growth.
But before we get to the numbers let’s dive into the Insight platform, which has four modules, in a bit more detail. The first module, dubbed InsightVM, provides vulnerability management, enabling users to prioritize risk using analytics and quickly enact changes.
The second, InsightIDR, is used to detect compromised users and suspicious activity across the network and respond rapidly—often automatically—to save data and assets.
Third is InsightAppSec, which, as the name suggests, is all about securing a company’s applications. It’s scalable for any size application portfolio and lets developers collaborate to implement fast-track fixes.
Last but not least is InsightConnect (just rolled out last October), which offers a client’s developers more than 200 plugins that enable them to them automate many manual and repetitive tasks and accelerate security and IT operations.
All told, the company thinks it’s now playing in a $22 billion (and growing) market, and the Insight platform is helping Rapid7 grab an increasing chunk of it. Indeed, the firm’s offering has impressed enough for it to have more than 80 platform integrations with data collaboration, data workflow and data ingestion partners. All of that has helped Rapid7’s more than 7,800 customers, including many big, recognizable names like Wells Fargo, Domino’s, Adobe, Kimberly-Clark, Macy’s, Comcast, Groupon and Motorola. And those customers are both sticking around (88% to 90% renewal rates each of the past eight quarters) and adding more products (same-customer revenue growth north of 20% every quarter).
Encouragingly, customers that came onboard five years ago are now spending 3.6 times as much as they did in their first year—a trend seen across all cohorts through recent years. Even better (especially for investors) is that all these customers contribute to the firm’s rapidly expanding cache of recurring revenue. The firm’s key metric is what it calls its annualized recurring revenue, and it’s been skyrocketing of late, up 53% for all of 2018 and management has guided that figure up more than 30% in 2019, which is likely conservative; overall revenues are expected to rise 26% this year, while earnings nose into the black.
All told, it looks like Rapid7 has the products geared for a world where big companies are looking for easy, flexible ways to secure assets across their IT networks. The story, numbers and chart all point to good things going forward; simply put, Rapid7 looks like a new leader in the cybersecurity arena.
RPD has had a solid couple of years, but as it was a thinly-traded stock, movements tended to be jumpy in both directions. But the stock has “grown up” and changed character since the market’s Christmas Eve bottom—shares spiked from 28 to 48 in a straight line and on big volume, paused in a tight range for four weeks (finding support at the stock’s rising 25-day line) and then popped to higher highs last week on another round of big volume.
This is a high risk situation, and volatility is to be expected, but there is great growth ahead for investors who can tolerate the action.
Timothy Lutts, Cabot Stock of the Week, www.cabotwealth.com, 978-745-5532, March 19, 2019