Security Software Analyst Downgrades Rapid7 On Dismal Q3 Performance

Keybanc analyst Michael Turits downgraded Rapid7, Inc RPD from Overweight to Sector Weight.

Turits maintained Palo Alto Networks, Inc PANW with an Overweight and cut the price target from $227 to $210.

October quarter checks on Palo's October quarter in the last two weeks indicated strong billings and invoicing but widespread reports of missed or slowing bookings for Palo and security in general. 

Turits continues to see security as relatively resilient based on his checks suggesting slowing security industry bookings, and he cut estimates and price targets across the board in security and got more selective.

He re-rated RPD following the 3Q ARR miss and lower on sales execution around the product portfolio and macro. 

He re-rated PANW ahead of F1Q23 earnings on November 17. 

Like last quarter, most U.S. and WW Palo partners he spoke with indicated invoicing and shipping on or above plan for the October quarter. 

However, most said bookings were either below plan or slowed. Most expect security and especially box sales growth to slow in 2023 but reported ongoing strong demand for SASE, cloud security, identity, endpoint, and AppSec. 

The views of C4Q were mixed, with some improvements and some off to a tough start. Turits expects strong PANW F1Q revenue, product, Next Gen ARR, and billings but was uncertain about the F2Q guide. 

Turits wrote he would not be surprised to see some softness in F1Q RPO (and implied bookings and backlog) and caution around the FY23 outlook, none of which should be shocking after disappointing FTNT C3Q backlog and bookings and 3Q beats but guides below from many software vendors. 

Despite the macro and later stages of the hardware cycle, he continues to view security as a high-priority spend, with Palo as the consolidator best positioned in the cloud and on-prem, with competitive SASE, cloud security, endpoint, and network security offerings. 

Price Action: RPD shares traded lower by 4.46% at $29.54 on the last check Wednesday.