Cyber Resilience And Data Security Will Open New Possibilities

Key Takeaways

• Rubrik's innovations and strategic cybersecurity focus enhance market share, revenue growth, and competitive positioning while expanding their total addressable market.
  
• Partnerships and enhanced recovery capabilities leverage enterprise needs, improving customer retention and profitability, fueling earnings growth and expanding their data security footprint.
  
• Economic and competitive pressures, along with uncertainties in AI and cloud strategies, pose risks to Rubrik's revenue growth and financial stability.

Catalysts

Provides data security solutions to individuals and businesses worldwide.

• Rubrik's strategic focus on cyber resilience, particularly through innovations like their Rubrik Security Cloud and integration with DSPM, positions them strongly against competitors, suggesting potential future gains in market share and revenue growth.
  
• The company's pivotal role at the intersection of data security and AI, especially through products like Annapurna, can expand their total addressable market (TAM), potentially driving future revenue growth and enhancing their market position in this expanding field.
  
• Strategic partnerships, such as with Microsoft, support Rubrik's offerings in Azure and M365 environments, which can foster growth in the adoption of their data security solutions, positively impacting revenue and customer expansion opportunities.
  
• Rubrik's expanded capabilities in identity recovery and Active Directory forest recovery address critical enterprise needs, providing additional avenues for revenue growth by fulfilling emerging market demands, thereby improving customer retention and net retention rates.
  
• Operational efficiencies and improved expense management have led to significant enhancements in subscription ARR contribution margin, which can lead to improved profitability and expectations of higher free cash flow, supporting future earnings growth.

Rubrik Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rubrik's revenue will grow by 26.2% annually over the next 3 years.
• Analysts are not forecasting that Rubrik will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Rubrik's profit margin will increase from -53.7% to the average US Software industry of 13.1% in 3 years.
• If Rubrik's profit margin were to converge on the industry average, you could expect earnings to reach $257.3 million (and earnings per share of $1.1) by about September 2028, up from $-524.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 130.2x on those 2028 earnings, up from -32.3x today. This future PE is greater than the current PE for the US Software industry at 36.6x.
• Analysts expect the number of shares outstanding to grow by 6.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.46%, as per the Simply Wall St company report.

Rubrik Future Earnings Per Share Growth

Risks

• The company's reliance on predicting forward-looking statements and market trends could lead to unforeseen material differences, which may affect revenue and earnings if these predictions do not meet expectations.
  
• The aggressive competition in the cyber resilience market, including legacy providers and new-gen alternatives, could hinder market share growth and affect revenue and profitability.
  
• The AI and cloud transformation strategies are still early-stage, and any delays in product-market fit discovery or adoption could impact long-term revenue growth.
  
• Economic factors such as global tariff impacts and overall macroeconomic conditions may shift customer spending priorities away from Rubrik's offerings, potentially affecting revenue projections.
  
• Potential billing duration compression could lead to cash flow challenges, as a shorter billing term might limit upfront cash collection impacting the net margins and financial flexibility.

Valuation

• The analysts have a consensus price target of $112.684 for Rubrik based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $125.0, and the most bearish reporting a price target of just $97.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $257.3 million, and it would be trading on a PE ratio of 130.2x, assuming you use a discount rate of 8.5%.
• Given the current share price of $87.72, the analyst price target of $112.68 is 22.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.