For more than a decade, Rapid7 chief executive Corey Thomas and his team have acquired smaller rivals to build a diversified cybersecurity company that competed across half a dozen distinct product lines.
But Rapid7′s revenue growth has slowed over the past few years and the company’s stock price, which peaked in November 2021 at more than $140 per share, closed at $39.79 on Tuesday before the company announced second quarter earnings.
That earnings announcement, released after the stock market closed, included a surprise beyond the financial results. Thomas said the company would cut 18 percent of its workforce, or nearly 500 jobs, shrink its real estate footprint, and make a shift away from the “everything” strategy.
After the restructuring, Rapid7 will focus on providing security for customers’ cloud apps and offering integrated services that both look for cyber threats and engage countermeasures, a product known in the industry as Security Orchestration and Automation Response, or SOAR.
“Even great security tools are often operated in silos and are not meeting the promise of results customers need,” Thomas explained in an email to employees on Tuesday announcing the layoffs. “In today’s complex hybrid environments with highly-capable and innovative attackers, customers demand efficacy and efficiency, and integration across solutions is becoming imperative.”
The company declined to make Thomas, who has headed the company for almost 11 years, available for an interview.
After the email went out, Thomas held a series of virtual town hall meetings with employees in different parts of the world to talk through the changes. The layoffs followed a review by an outside consultant that recommended cost cutting to improve profitability, the CEO told his employees.
Still, many were shocked that Rapid7, which employed more than 2,600 people at the end of last year, would make cuts when it was still growing. Revenue in the second quarter grew 14 percent to $190 million, though that was less than half of the 32 percent growth rate in the second quarter of 2022. The company also posted a net loss of $67 million for the quarter, but excluding some costs such as stock-based compensation reported an adjusted profit of $12 million.
“It was absolutely a surprise,” said one security consultant who was laid off. He asked that his name not be used because the terms of the company’s severance agreement prohibited commenting. “My team was seeing more growth and attention, both internally and externally, than it had ever experienced.”
Rapid7 was founded in 2000 with a focus on monitoring customers’ networks and uncovering attacks and vulnerabilities. Since going public in 2015, the company has used a series of acquisitions to expand into new markets. It paid $145 million to acquire DivvyCloud in 2020 to expand its cloud products and $335 million in 2021 for threat intelligence firm IntSights, for example.
But with the economy slowing and corporate customers looking to cut back on IT expenditures, Rapid7′s various individual product offerings were becoming less popular than its broader integrated solutions. Rapid7 has also been rumored to be fending off a potential takeover by private equity firm Thoma Bravo, doubtless attracted by the steep fall in the company’s stock price.
Analyst Alex Henderson at Needham & Co. called the restructuring a “bold stroke” that could nonetheless cause some disruption to Rapid7′s business over the next few quarters. “Laying off 18 percent of your workforce is a pretty major move,” Henderson wrote in a report on Wednesday. “It will take time to deliver the benefits, but it sets up better growth and profitability long-term.”
Investors apparently agreed. Rapid7′s stock price jumped as much as 23 percent in midday trading on Wednesday to almost $49.
Aaron Pressman can be reached at aaron.pressman@globe.com. Follow him @ampressman.
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