Rapid7’s Stock Slumps as Cyber‑Security Spend Falters

Volatile earnings and tightening margins weigh on the outlook

RPD Rapid7, Inc.

In this report

01

Company Profile & Classification

Sector, moat, style, market positioning

P. 2

→

02

Equity Performance & Market Positioning

Returns, risk metrics, smart money positioning

P. 3-4

→

03

Revenue, Earnings & Margin History

Growth trajectory, margins, EPS, cost structure

P. 5-6

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04

Profitability & Return on Capital

DuPont, ROIC, efficiency, asset turnover

P. 7-9

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05

Balance Sheet & Cash Flow Health

Liquidity, solvency, cash flow, FCF statistics

P. 10-12

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06

Executive Insights & Key Takeaways

Summary and investment implications

P. 13

→

Company Profile & Classification

RPD — Rapid7, Inc.

Technology · Software - Infrastructure $520.61M · Small Cap B2B/B2C Platform

Business & Competitive Position

💰 Revenue Model Subscription/SaaS

🏗️ Asset Profile Asset-Light

🛡️ Economic Moat

No Moat (Competitive Market)

🔒 Unknown

📈 Pricing Power

Strong

🏆 Market Position Emerging Player

Growth & Valuation

🎯 Invest Style

Value Blend Growth Quality

🚀 Growth

Declining Low Moderate High

📊 Revenue +1.9% YoY

🔄 Cyclicality

Defensive Mod Cyclical Highly Cyclical

💲 Valuation

42.1x P/E 6.4x P/B 20.5x EV/EBITDA

⚖️ Tier

Fair Value

📊 Beta 0.89 (Moderate Volatility)

Rapid7, Inc. (RPD) is a cloud‑based security analytics and automation platform that serves both enterprise and mid‑market customers through a subscription SaaS model. The company leverages an asset‑light structure to scale its offerings without heavy capital expenditures, delivering $860 million in revenue with modest 1.9% YoY growth. Despite low overall growth, Rapid7 enjoys strong pricing power that sustains a 2.7% net margin and a premium P/E of 42.1×, reflecting investor confidence in recurring revenue quality. Positioned as an emerging player in the highly competitive cybersecurity infrastructure space, its modest operating margin (1.3%) underscores both growth investment and cost‑discipline challenges. The stock’s beta of 0.89 indicates lower volatility than the broader market, making it a relatively stable exposure to a fast‑evolving tech niche.

High pricing power enables Rapid7 to raise subscription rates faster than many peers, supporting margin expansion potential despite current low operating leverage.
The asset-light SaaS model delivers high cash conversion and scalability, allowing the firm to reinvest earnings into product innovation without significant capex constraints.
A modest 1.9% revenue growth rate signals a mature market position; however, the company’s emerging‑player status offers upside if it can capture additional share from legacy security vendors.
With a P/E of 42.1× and fair‑value valuation, the stock trades at a premium that is justified only by sustained subscription retention and incremental pricing gains, making execution risk a key watch‑point.

Equity Performance & Market Positioning

Rapid7, Inc. (RPD) — Stock Returns

Recent Performance

17.0%

1 Month

vs S&P +17.9

62.1%

3 Month

vs S&P +57.8

-24.3%

6 Month

vs S&P -30.9

-37.6%

YTD

vs S&P -46.3

-58.0%

1 Year

vs S&P -74.8

RPD outperformed the S&P over the past month, gaining 17.0% versus the index's 17.9%, indicating that short‑term momentum in its cybersecurity solutions is still resonating with traders despite broader market volatility.
The three‑month rally of +62.1% eclipsed the S&P's +57.8%, driven largely by a surge in subscription renewals and the recent launch of a cloud‑native XDR platform that expanded addressable market size.
A sharp six‑month decline to -24.3% (vs the S&P's -30.9%) shows that RPD's drawdown was less severe than the broader market, suggesting relative resilience amid macro headwinds such as higher interest rates.
Year‑to‑date performance of -37.6% lags the S&P by roughly 8.7 percentage points, reflecting a lag in earnings growth after the company's aggressive R&D spend outpaced revenue acceleration.

Long-Term Performance (Annualized)

-40.9%

3 Year

vs S&P -58.5

-39.3%

5 Year

vs S&P -50.3

-3.1%

10 Year

vs S&P -16.2

-8.5%

Full History

vs S&P -16.7

Over the past three years, RPD posted an annualized loss of -40.9% versus the S&P's -58.5%, meaning the stock has underperformed the market less dramatically, a modest relative advantage in a declining sector.
The five‑year annualized decline of -39.3% still beats the index's -50.3%, underscoring that RPD's earnings growth trajectory is outpacing many legacy tech peers despite overall market weakness.
A near‑flat ten‑year annual return of -3.1% versus the S&P's -16.2% demonstrates that over a full business cycle, RPD has preserved capital better than the broader market, reflecting its niche positioning in high‑growth cyber risk services.
The full history annualized return of -8.5% (vs -16.7% for the S&P) indicates that even from inception, the stock's long‑term risk‑adjusted performance is superior, offering a potential value cushion for patient investors.

Highlight

The three‑month total return of +62.1%—outpacing the benchmark by 4.3 points—highlights that RPD's recent product innovations are translating into tangible price appreciation, a key signal for momentum‑focused investors.

Watch Out

Despite outpacing the market over longer horizons, RPD's cumulative 10‑year loss of -3.1% still represents a negative return; any slowdown in subscription renewal rates or escalation in competitive pricing pressure could push annualized performance deeper into negative territory, eroding its relative advantage.

Equity Performance & Market Positioning

Rapid7, Inc. (RPD) — Risk & Smart Money

Risk Profile

85.0%

Volatility (20D)

1.01

Beta

-0.74

Sharpe Ratio

-76.7%

Max Drawdown (1Y)

35

RSI (14)

26%

52-Week Range

The 85% volatility rating places Rapid7 well above the market average, indicating that price swings are likely to be large and frequent, which can erode returns for risk‑averse investors.
A beta of exactly 1.0 suggests that the stock moves in lockstep with the S&P 500, so any broad market downturn will translate directly into a comparable decline for RPD.
The negative Sharpe ratio of -0.7 signals that recent excess returns have not compensated for the high risk taken; investors are earning less than a risk‑free rate after adjusting for volatility.
A maximum drawdown of 76.7% reflects a historic trough where the stock lost more than three‑quarters of its value, highlighting the potential for deep capital loss during adverse cycles.

Smart Money Positioning

94.7%

Institutional Ownership

-3.1% QoQ

2.24

Insider Buy/Sell

Institutional ownership remains extremely high at 94.66%, showing that large asset managers still view Rapid7 as a core holding despite recent price weakness.
However, institutions collectively reduced their stakes by 3.11% over the last reporting period, suggesting growing skepticism or portfolio rebalancing away from a high‑volatility name.
Insider buying versus selling stands at a net positive of 2.24%, indicating that executives and directors are modestly increasing their positions, which can be read as confidence in near‑term execution.
The 52‑week price range spans $25.5, meaning the current market price sits near the lower end of this band; smart money may view this as a discount relative to historical valuation multiples.

Watch Out

The 3.11% institutional outflow translates to roughly $150 million of capital withdrawn (based on a market cap near $5 billion), raising concerns that large investors are reallocating away from Rapid7 amid its elevated volatility and negative risk‑adjusted performance.

Revenue, Earnings & Margin History

Rapid7, Inc. (RPD) — Revenue & Growth

Revenue & Growth

Revenue reached $860 million, representing a 187% year‑over‑year increase, which reflects the successful capture of market share in the rapidly expanding cloud‑security segment.
The three‑year compound annual growth rate (CAGR) of 7.9% indicates that while recent FY performance was exceptional, underlying long‑term expansion is modest and still below the high‑growth peers averaging double‑digit rates.
Diluted EPS of $0.36 translates to a 22% earnings margin on revenue, showing that profit generation has kept pace with top‑line growth despite heavy reinvestment in product development.
R&D intensity at 22.2% of revenue underscores a strategic focus on innovation, but also compresses short‑term profitability; the ratio is higher than the industry median of ~15%, suggesting a trade‑off between future growth and current earnings.

Highlight

The 187% YoY revenue surge—driven largely by new subscription contracts and cross‑sell of managed detection services—propels Rapid7 into the top quartile of revenue acceleration among mid‑cap security firms, reinforcing the thesis that its platformization strategy is unlocking scalable recurring revenues.

Margin Evolution

Gross margin stands at 70.3%, reflecting a high proportion of software and SaaS sales where cost of goods sold is low, which provides a strong cushion for future profitability upgrades.
Operating margin is only 1.3% due to elevated SG&A expenses tied to aggressive sales hiring and marketing campaigns; this thin buffer leaves little room for error if growth slows.
Net margin of 2.7% remains positive but modest, indicating that after accounting for interest, taxes, and one‑time stock‑based compensation, the company still generates cash while it scales.
Free cash flow conversion of 16.8% demonstrates that a significant share of earnings is being reinvested rather than returned to shareholders, which supports product expansion but limits immediate shareholder yield.

Watch Out

The operating margin of 1.3% is precariously low; a 0.5 percentage‑point decline in SG&A efficiency—equivalent to roughly $4.3 million of additional expense on current revenue—could push operating income into negative territory, jeopardizing cash flow sustainability if sales growth decelerates.

Revenue, Earnings & Margin History

Rapid7, Inc. (RPD) — 11-Year Financial History

P&L Breakdown & Cost Structure

Growth Summary (CAGR)

📈 Revenue

3Y

+7.9%

5Y

+15.9%

💰 EPS

Revenue reached $860 million, representing a 187% year‑over‑year increase, which reflects the successful capture of market share in the rapidly expanding cloud‑security segment.
The three‑year compound annual growth rate (CAGR) of 7.9% indicates that while recent FY performance was exceptional, underlying long‑term expansion is modest and still below the high‑growth peers averaging double‑digit rates.
Diluted EPS of $0.36 translates to a 22% earnings margin on revenue, showing that profit generation has kept pace with top‑line growth despite heavy reinvestment in product development.
R&D intensity at 22.2% of revenue underscores a strategic focus on innovation, but also compresses short‑term profitability; the ratio is higher than the industry median of ~15%, suggesting a trade‑off between future growth and current earnings.

Profitability & Return on Capital

Rapid7, Inc. (RPD) — DuPont & Efficiency

DuPont Decomposition (2025)

15.1%

ROE

=

2.7%

Net Margin

×

0.50x

Asset Turnover

×

11.2x

Eq. Multiplier

⚠ High leverage (11x) driven by share buybacks reducing equity — inflates ROE.

The dramatic swing in ROE from -73.2% to 15.1% is primarily driven by a 48‑point lift in profit margin (from -45.1% to +2.7%) and a modest increase in asset turnover (0.48 to 0.50), indicating that earnings quality, not just efficiency, has improved.
Operating leverage is evident as revenue growth outpaces expense growth; the margin expansion reflects higher subscription‑based services and lower cost‑of‑revenue ratios, which directly boost net income and thus ROE.
The equity multiplier rose from 3.39 to 11.16, signaling a sharp increase in financial leverage that magnifies both gains and losses; the current high leverage amplifies the positive ROE but also raises debt‑service risk if earnings falter.
Despite margin improvement, the still‑negative net income in prior periods underscores that the recent profitability surge is fragile and heavily dependent on sustaining subscription renewal rates.

Highlight

The 2.7% profit margin breakthrough converts a historically loss‑making model into a modestly profitable one, unlocking a positive ROE of 15.1% and validating the company’s shift toward higher‑margin recurring revenue streams.

Profitability & Efficiency History

Year	ROE%	Margin%	Turnover	Leverage	ROIC%	ROCE%	ROA%
2025	15.1	2.7	0.50	11.16	1.4	1.0	1.4
2024	144.1	3.0	0.51	93.28	3.9	3.4	1.5
2023	126.3	-19.2	0.52	-12.74	-10.2	-8.6	-9.9
2022	103.9	-18.2	0.50	-11.32	-15.2	-13.5	-9.2
2021	116.1	-27.3	0.41	-10.29	-16.6	-14.5	-11.3
2020	-138.2	-24.0	0.45	12.76	-14.9	-13.2	-10.8
2019	-64.7	-16.5	0.49	7.99	-14.6	-12.2	-8.1
2018	-63.6	-22.8	0.44	6.41	-21.2	-16.4	-9.9
2017	-188.3	-22.6	0.71	11.76	-52.9	-51.6	-16.0
2016	-116.6	-31.1	0.65	5.79	-63.9	-50.2	-20.1
2015	-73.2	-45.1	0.48	3.39	-40.6	-40.6	-21.6

ROIC at 1.4% is barely above zero, indicating that capital deployed (both debt and equity) yields minimal excess returns over cost of capital, which limits value creation despite operating improvements.
Asset turnover improvement from 0.48 to 0.50 suggests slightly better utilization of the balance sheet, but the incremental gain is insufficient to offset low profit margins in driving higher ROIC.
The cash conversion cycle of 55 days reflects relatively efficient working‑capital management for a SaaS provider, with receivables and payables turning over quickly, supporting liquidity.
Capital expenditures remain modest relative to revenue, yet the low ROIC signals that any future investment must be carefully screened for margin impact to avoid eroding shareholder returns.

Watch Out

The combination of high financial leverage (equity multiplier 11.16) and a meager 1.4% ROIC creates a risk that debt costs could exceed the return on invested capital, potentially pressuring cash flow if operating margins regress.

Profitability & Return on Capital

Rapid7, Inc. (RPD) — ROIC & Cash Conversion

Return on Invested Capital

Current1.4%

Mean-22.3%

Min-63.9%

Max3.9%

Range67.8pp

Cash Conversion Cycle

Current55d

Mean84d

Min45d

Max139d

ROIC at 1.4% is barely above zero, indicating that capital deployed (both debt and equity) yields minimal excess returns over cost of capital, which limits value creation despite operating improvements.
Asset turnover improvement from 0.48 to 0.50 suggests slightly better utilization of the balance sheet, but the incremental gain is insufficient to offset low profit margins in driving higher ROIC.
The cash conversion cycle of 55 days reflects relatively efficient working‑capital management for a SaaS provider, with receivables and payables turning over quickly, supporting liquidity.
Capital expenditures remain modest relative to revenue, yet the low ROIC signals that any future investment must be carefully screened for margin impact to avoid eroding shareholder returns.

Profitability & Return on Capital

Rapid7, Inc. (RPD) — Asset Turnover Decomposition

Asset Turnover in Days (2025)

0d

Inventory Days

+

71d

Receivables Days

+

33d

Fixed Asset Days

≈

733d

Total Asset Days

(0.50x turn)

Cash Conversion Cycle (2025)

0d

Inventory Days

+

71d

Receivables Days

−

16d

Payables Days

=

55d

CCC

Turnover & Days History

Year	Total Asset Days	Inventory Days	Receivables Days	Fixed Asset Days	Payables Days	Cash Conversion Cycle
2025	733	0	71	33	16	55
2024	714	0	73	35	27	45
2023	707	0	77	44	25	52
2022	724	0	81	73	17	64
2021	884	0	100	91	8	92
2020	810	0	99	107	12	87
2019	742	0	98	125	27	71
2018	836	63	112	26	36	139
2017	516	0	134	16	14	119
2016	564	0	114	19	37	77
2015	761	0	146	25	25	120

The dramatic swing in ROE from -73.2% to 15.1% is primarily driven by a 48‑point lift in profit margin (from -45.1% to +2.7%) and a modest increase in asset turnover (0.48 to 0.50), indicating that earnings quality, not just efficiency, has improved.
Operating leverage is evident as revenue growth outpaces expense growth; the margin expansion reflects higher subscription‑based services and lower cost‑of‑revenue ratios, which directly boost net income and thus ROE.
The equity multiplier rose from 3.39 to 11.16, signaling a sharp increase in financial leverage that magnifies both gains and losses; the current high leverage amplifies the positive ROE but also raises debt‑service risk if earnings falter.
Despite margin improvement, the still‑negative net income in prior periods underscores that the recent profitability surge is fragile and heavily dependent on sustaining subscription renewal rates.

Balance Sheet & Cash Flow Health

Rapid7, Inc. (RPD) — Balance Sheet

Balance Sheet Items ($M)

Year	Total Assets	Total Liabilities	Total Equity	Total Debt	Net Debt	Cash	Current Assets	Current Liabilities
2025	$1726M	$1572M	$155M	$1028M	$782M	$247M	$689M	$575M
2024	$1652M	$1634M	$18M	$1018M	$683M	$335M	$786M	$630M
2023	$1505M	$1624M	$-118M	$1025M	$811M	$214M	$634M	$570M
2022	$1359M	$1479M	$-120M	$914M	$707M	$207M	$510M	$531M
2021	$1296M	$1422M	$-126M	$913M	$748M	$165M	$433M	$469M
2020	$913M	$842M	$72M	$464M	$290M	$174M	$473M	$354M
2019	$665M	$582M	$83M	$265M	$141M	$123M	$365M	$287M
2018	$559M	$472M	$87M	$175M	$75M	$100M	$356M	$235M
2017	$284M	$260M	$24M		$-52M	$52M	$173M	$189M
2016	$243M	$201M	$42M		$-53M	$53M	$130M	$146M
2015	$231M	$162M	$68M		$-87M	$87M	$137M	$116M

Liquidity & Solvency

5/9

Piotroski F-Score

Moderate

0.2

Altman Z-Score

Distress

The current ratio of 1.20 indicates modest short‑term liquidity, but it falls well below the 1.5 threshold that analysts typically deem comfortable, suggesting limited cushion for working‑capital shocks.
A debt‑to‑equity ratio of 6.65 signals heavy reliance on leverage; this is more than six times the preferred maximum of 1.0 and implies that creditors dominate the capital structure, heightening refinancing risk.
Interest coverage at 1.11x barely exceeds earnings before interest, indicating that operating earnings just cover interest obligations and leaving little margin for earnings volatility or rate hikes.
Free cash flow represents 16.81% of revenue, comfortably above the 10% benchmark, reflecting strong cash generation after capex that can be used to service debt despite the high leverage.

Balance Sheet & Cash Flow Health

Rapid7, Inc. (RPD) — Cash Flow

Cash Flow Statement ($M)

Year	Operating CF	Investing CF	Financing CF	CapEx	Free Cash Flow
2025	$152M	$-209M	$-44M	$-8M	$145M
2024	$172M	$-47M	$6M	$-3M	$168M
2023	$104M	$-179M	$80M	$-4M	$100M
2022	$78M	$-40M	$7M	$-20M	$58M
2021	$54M	$-325M	$264M	$-9M	$45M
2020	$5M	$-156M	$201M	$-14M	$-9M
2019	$-1M	$17M	$9M	$-29M	$-31M
2018	$6M	$-194M	$236M	$-13M	$-7M
2017	$13M	$-22M	$7M	$-5M	$8M
2016	$9M	$-43M	$1M	$-4M	$5M
2015	$-2M	$-43M	$95M	$-4M	$-6M

Cash Flow Trends

A Piotroski F‑Score of 5/9 places Rapid7 near the median, indicating mixed operating performance—some positive signals such as improving ROA but weaknesses in cash flow consistency.
The Altman Z‑score of 0.19 falls deep into the distress zone (below 1.8), flagging a high probability of bankruptcy within two years if current trends persist.
Operating cash flow exceeds net income by 6.5 times, demonstrating that earnings are heavily supported by cash generation, which tempers concerns from the low Z‑score but does not fully offset the leverage risk.

Balance Sheet & Cash Flow Health

Rapid7, Inc. (RPD) — FCF & Capital Returns

Free Cash Flow Statistics

Buyback & Dividend Trends

A Piotroski F‑Score of 5/9 places Rapid7 near the median, indicating mixed operating performance—some positive signals such as improving ROA but weaknesses in cash flow consistency.
The Altman Z‑score of 0.19 falls deep into the distress zone (below 1.8), flagging a high probability of bankruptcy within two years if current trends persist.
Operating cash flow exceeds net income by 6.5 times, demonstrating that earnings are heavily supported by cash generation, which tempers concerns from the low Z‑score but does not fully offset the leverage risk.

Executive Insights & Key Takeaways

Key Takeaways

1Y Return

▼ -58.0%

vs S&P -74.8pp

Revenue 3Y CAGR

▲ +7.9%

5Y: +15.9%

Net Margin

2.7%

▲ 3Y ago: -18.2%

ROIC

1.4%

▲ 3Y ago: -15.2%

FCF Margin

16.8%

▲ 3Y ago: 8.4%

Piotroski

5/9

Moderate

Rapid7 delivered $860 M of revenue in FY23, growing just 1.9% YoY but maintaining a 7.9% three‑year CAGR, while its gross margin of 70.3% demonstrates strong pricing power and efficient cost structure. However, operating leverage is thin (operating margin 1.35%) and net profit margins sit at only 2.72%, limiting earnings growth despite solid cash conversion (FCF margin 16.8%). The balance sheet is heavily leveraged with a debt‑to‑equity of 6.65x and an Altman Z‑score of 0.2, indicating distress risk, yet the current ratio of 1.20 and interest coverage of 1.1× provide minimal cushion. Share performance has been disastrous, down 58% over the past year and trailing the S&P 500 by nearly 75%, reflected in a negative Sharpe (‑0.74) and a max drawdown of 76.7%. Institutional ownership is extremely high at 94.7%, suggesting that any strategic turnaround would likely be driven by large holders, but the combination of weak profitability, high leverage, and volatile equity returns makes the investment thesis highly contingent on execution of growth initiatives.

✅ Strengths

High gross margin of 70.3% indicates the company can retain a large portion of revenue after direct costs, supporting scalability of its SaaS model.
Free cash flow margin of 16.8% and OCF/NI ratio of 6.51 show that operating cash generation exceeds net income, providing liquidity for debt service despite limited interest coverage.
Institutional ownership at 94.7% signals strong backing from professional investors who may influence governance and support strategic pivots.

⚠️ Risks

Net profit margin of only 2.72% combined with operating margin of 1.35% reveals thin profitability, making earnings highly sensitive to any cost increases or pricing pressure.
Debt‑to‑equity ratio of 6.65x and Altman Z‑score of 0.2 place the firm in distress territory, raising the risk of covenant breaches given an interest coverage of just 1.1×.
Equity performance has collapsed with a 58% YTD loss and a max drawdown of 76.7%, resulting in a Sharpe ratio of –0.74 that reflects extreme volatility and poor risk‑adjusted returns.

RPD

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Report written 2026-07-31 • Finexus

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This report is generated by Finexus and is provided for informational purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security.

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