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Rubrik shares dip despite solid results amid profitability concerns

Published 09/10/2024, 05:36 PM
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Investing.com -- Shares of Rubrik Inc (NYSE:RBRK) fell 8.2% in pre-open trading on Tuesday following its second-quarter results, which, despite beating key metrics, raised concerns among investors about continued large losses and an uncertain macroeconomic environment. 

While the company posted stronger-than-expected revenue and Annual Recurring Revenue, the cautious outlook provided by management on economic conditions and ongoing EBIT losses tempered investor enthusiasm.

Rubrik delivered robust results for F2Q FY25, beating consensus estimates in several key areas. The company's Subscription ARR grew by 40% year-over-year (YoY) to $919 million, outpacing consensus estimates of $888 million by $31 million or 3.5%. 

This continues the momentum from the previous quarter when the company also beat ARR expectations. Subscription revenue came in at $191 million, up 50% YoY, surpassing consensus by $8 million.

As per to analysts at KeyBanc Capital Markets, the company’s strong ARR beat, combined with better-than-expected revenue of $205 million (vs. the expected $196 million), flags the continued demand for Rubrik’s cyber and backup & recovery solutions. 

Additionally, the company reported a Free Cash Flow (FCF) loss of $32 million, a much smaller loss than the consensus estimate of $72 million, demonstrating improvements in operational efficiency. 

“Most of our estimates are moving higher. However, against a backdrop of lower valuation multiples for high growth, low FCF margin software companies, we lower our target price to $38 from $40, and we maintain our Outperform rating,” said analysts at BMO.

EPS losses also came in better than anticipated, with a $0.40 loss, beating expectations by $0.09.

Rubrik also raised its full-year FY25 guidance, increasing its Subscription ARR outlook to between $1.026 billion and $1.032 billion, above the consensus estimate of $991 million.

This represents YoY growth of 31-32%, an improvement over the previous guidance. 

Rubrik’s FY25 revenue guidance of $830 million to $838 million, representing 32-33% YoY growth, beat consensus expectations of $818 million. 

The company’s management attributed these raises to improved visibility in the second half of the year, particularly around its customer adoption of data security functionality and cross-sell opportunities.

Despite these positive developments, shares of Rubrik fell in pre-open trade as investors weighed the company’s ongoing profitability challenges and management’s comments on the uncertain macroeconomic environment. 

Rubrik continues to report significant EBIT losses, with an EBIT loss margin of -30%, though this was better than the consensus estimate of -42%.

KeyBanc Capital Markets analysts noted that while Rubrik has shown strong top-line performance, its continued large losses, combined with macroeconomic headwinds, may have spooked investors.

The company’s transition to a subscription and cloud model, though beneficial in the long term, may also be contributing to near-term uncertainty as investors assess its impact on financial visibility and customer retention.

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