Rapid7 drops 27% as flat quarterly revenue clouds recovery view

Investing.com -- Rapid7 shares fell about 27% in premarket trading after the cybersecurity firm reported dour results for fiscal 2025 and issued a weaker outlook.

Canaccord downgraded the stock to Hold from Buy and cut its price target to $10 from $27.

Total annual recurring revenue was $840 million, flat from a year earlier. Revenue rose 1% to $217 million, including subscription revenue of $209 million, up 1.4%. Detection and Response grew 7% year over year, but gains were offset by continued pressure in the company’s legacy vulnerability management business.

Profitability weakened with non-GAAP gross margin for the year was 75.3%, down 20 basis points from a year earlier. Operating margin fell to 15.8%, and free cash flow declined to $32.3 million.

“Changes are being made, and it's not like the business is standing still, but the visibility into when these changes will bear fruit in the reported financials is painfully low, for now,” analysts said.

Canaccord said Rapid7 remains defined by a contrast between steady demand for detection and response products and a drag from older businesses.

The firm said initial fiscal 2026 guidance came in well below expectations, with revenue projected to decline 2% to 3%, no annual recurring revenue forecast provided, and both operating profit and free cash flow expected to fall year over year.

Management has spent the past year rebuilding its sales approach, simplifying coverage and adding global delivery capacity from Pune.

A new chief commercial officer joined during the quarter, and the brokerage expects tighter sales execution and efficiency gains over time.

But visibility into when these changes will show up in reported results remains limited.

Canaccord said the lack of clarity around a return to revenue growth makes it difficult to support a higher valuation, especially as management guides to declines in both revenue and profit.

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