UBS analysts reduced their price target on Rapid7 (NASDAQ:RPD) to $65.00 from $70.00 while maintaining a Buy rating following the company’s reported Q1 earnings, which resulted in a share price drop of more than 4% pre-market today.

The analysts noted that Rapid7 delivered disappointing results for the first quarter of 2024, with its Annual Recurring Revenue (ARR) falling short of expectations at $807 million compared to the consensus estimate of $817 million. Additionally, the company reduced its full-year ARR guidance.

Despite these setbacks, Rapid7's Operating Margin (OpM) exceeded expectations, reaching 20% in the first quarter, and the company reiterated its full-year operating income and Free Cash Flow (FCF) guidance despite the revenue shortfall. The analysts highlighted concerns regarding increased churn in Rapid7's cloud security business and its legacy Vulnerability Management (VM) solutions.

While the downward adjustment in ARR guidance is seen negatively, the analysts suggest that the revised guidance, which sets low expectations for the cloud security business, might be more realistic. They believe some of the issues leading to the disappointing results could be self-inflicted and correctable. With shares currently trading at 3.1 times the 2025 Enterprise Value to Sales (EV/S), the analysts see significant pessimism already reflected in the stock price.