Post #2: Rapid7-Cheap On Paper, Costly in Practice
Position: $25 | Holding Period 12+ Months
What is Rapid7?
Rapid7 is a global cybersecurity software that provides AI-powered solutions for vulnerability management, cloud security, and threat management. Founded in 2000 with an HQ in Boston, Rapid7 is highly utilized by enterprises to protect against cyberattacks.
Why Rapid7?
Over the past week, I have been engaging more and more with financial modeling. I eventually became more comfortable with valuation, and so I learned the comparative valuation technique.
In the past, I’ve stated that focusing on technology-based stocks will be important as the world moves more and more into a society with advanced artificial intelligence. I came across Rapid7 and thought that, just like artificial intelligence, Rapid7 can be grown at a compounding rate.
The Numbers:
Revenue trend (Q1, year-over-year):
• Q1’22: ~$157M
• Q1’23: ~$183M (+16.6%)
• Q1’24: ~$205M (+12.0%)
• Q1’25: ~$202M (−1.5%)
• Q1’26: ~$209M (+3.5%)
Full-year revenue:
• FY2023: ~$777M
• FY2024: ~$844M (+8.6%)
• FY2025: ~$860M (+1.9%)
The Bull Case:
As previously mentioned, I’ve been learning more about financial modeling and recently picked up comparative analysis. I put Rapid7 as a target for a comps model, with its peers being Qualys, Five9, and Tenable. I will paste a screenshot of the excel file below.
After making all the necessary calculations, I found that the implied share price derived by the EBITDA of RPD was $7.44, and using revenue was $32.96.
Using either method, the current market share price of Rapid7 is below the implied share price using peer values, which can suggest that Rapid7 is cheap relative to the money they generate.
Risks I’m Watching:
At first, I thought there was a mistake in my calculation or Excel formulas, but then I noticed a considerable gap and wondered why EBITDA was so much smaller than the revenue. EBITDA is earnings accounting for operating expenses whereas revenue is just money generated, so the difference had to be in how expensive operations were.
I looked into the expenses and saw that although Rapid7 generates well over $800M a year, they also generate almost $600M in operating expenses and have a net debt of almost $300M.
Verdict:
After all that, simply saying that Rapid7 is cheap relative to its peers isn’t enough to justify the overwhelming operating expenses. However, after diving deeper into the income statement specifics, I found that more than half of Rapid7’s total operating expenses come from aggressive sales and marketing tactics with G&A being the smallest factor. Basically, most of their operating expenses are controllable expenses like S&M. Rapid7 shows continued focus on growth by putting less towards G&A, and contributing more money to acquiring more customers.
However, all of that is not enough to explain Rapid7’s declining ARR and decelerating revenue growth across quarters. The cheapness highlighted by the model provides some optimism, but the net debt and lack of growth make this a “buy and watch,” not a clean buy.
It’s worth noting the decline isn’t spread evenly — Rapid7’s core detection and response business, which makes up about 55% of total ARR, actually grew around 7% year-over-year. The overall numbers look weaker than that because a smaller, legacy product line is shrinking and dragging the total down, which softens the picture a bit even if it doesn’t erase the concern.
References
Cabodevila, P. (2026, May 5). Rapid7 (RPD) Q1 2026 earnings call transcript. The Motley Fool. https://www.fool.com/earnings/call-transcripts/2026/05/05/rapid7-rpd-q1-2026-earnings-call-transcript/
Investing.com. (2026, May 6). Rapid7 Q1 2026 slides: Earnings beat masks revenue headwinds. https://www.investing.com/news/company-news/rapid7-q1-2026-slides-earnings-beat-masks-revenue-headwinds-93CH-4661431
Investing.com. (2026, May 11). Earnings call transcript: Rapid7 Q1 2026 beats EPS forecasts, stock dips. https://www.investing.com/news/transcripts/earnings-call-transcript-rapid7-q1-2026-beats-eps-forecasts-stock-dips-93CH-4677869
Investing.com. (2026, May 11). Rapid7 Q1 2026 slides: Earnings beat overshadowed by guidance concerns. https://www.investing.com/news/company-news/rapid7-q1-2026-slides-earnings-beat-overshadowed-by-guidance-concerns-93CH-4677934
Rapid7, Inc. (n.d.). Quarterly results. Investor Relations. Retrieved June 25, 2026, from https://investors.rapid7.com/financials/quarterly-results/default.aspx
StockAnalysis.com. (n.d.). Rapid7, Inc. (RPD) financials. Retrieved June 25, 2026, from https://stockanalysis.com/stocks/rpd/financials/
StockAnalysis.com. (n.d.). Qualys, Inc. (QLYS) financials. Retrieved June 25, 2026, from https://stockanalysis.com/stocks/qlys/financials/
StockAnalysis.com. (n.d.). Tenable Holdings, Inc. (TENB) financials. Retrieved June 25, 2026, from https://stockanalysis.com/stocks/tenb/financials/
StockAnalysis.com. (n.d.). Five9, Inc. (FIVN) financials. Retrieved June 25, 2026, from https://stockanalysis.com/stocks/fivn/financials/
StockTitan. (2026, May 5). Rapid7 announces first quarter 2026 financial results. https://www.stocktitan.net/news/RPD/rapid7-announces-first-quarter-2026-financial-fmpsf9udv2sp.html
Legal disclaimer: Not financial advice. I’m a student investor documenting my learning journey publicly. Always do your own research.