Analysis: Rubrik, Inc. Announces Q1 FY2025 Financial Results

Rubrik, Inc. has announced financial results for the first quarter of FY2025. The data shows a revenue increase of 38% over Q1 FY2024, of which subscription revenue increased 58.9%. However, losses increased massively, from $89 million in Q1 FY2024 to $732 million in the current period (820%). Are these numbers sustainable in the data protection market?

Background

Rubrik has reported financial data for the period Q1 FY2025, ending 30 April 2024. Generally, the business income numbers are rising steadily, with $187 million in revenue for the quarter, of which $172 million was subscription-based. The company reported a subscription annual recurring revenue (ARR) increase of 46% over the previous equivalent period in FY2024.

However, gross margin has declined to 48.8%, having previously been in the low to mid-70% range. In addition, Rubrik posted a massive loss of $732 million, due to a significant increase in expenses. Research & Development increased by more than 6-fold, Sales & Marketing increased 3.3x and General & Administrative increased by 6.64 times the previous equivalent quarter of FY2024.

Margin

Although we’re not financial analysts and absolutely do not provide financial advice, we can look at some of this data and make some assumptions. Firstly, the drop in gross margin to just under 50%, where previously during FY2024 this had fluctuated in the low to high 70% range.

The greatest increase in Cost of Revenue seems to have come from servicing subscriptions, which is likely to be more SaaS-focused. With any business that operates a SaaS platform using the public cloud as the hosted environment, the cost of delivery will rise with increasing revenue. Exactly how much depends on the services offered for the subscription price. The change in gross margin will be a key indicator of how efficiently Rubrik can deliver the services it offers through the SaaS model. At what point does operating in the public cloud become too inefficient?

Overheads

Then there is the question of overheads. We can understand the increase reported for Sales & Marketing, which, although large, is perhaps in line with other similar businesses that have looked to gain market share as quickly as possible (recent examples here are Nutanix and Pure Storage). But what about the R&D cost increases?

Figure 3 – Rubrik Revenue by Quarter FY2023-2025

During the earnings call following the financial announcement, CEO Bipul Sinha indicated that costs had increased due to talent acquisition in what is arguably a competitive market. What seems confusing to us is how those numbers have increased so dramatically in just a single quarter (see Figure 5). Either (a) costs have been deferred, (b) Rubrik is on a massive hiring spree, or (c) Rubrik is on a massive capital spending programme.

Figure 4 – Rubrik P&L by Quarter FY2023-2025

With such a significant investment in just one quarter (an “annual spend rate” of $1.1 billion), we should expect some significant and impressive new features to be announced for the Rubrik platform. Of course, the increase in costs could be attributed to the purchase of Laminar in 2023 for a reported $200-250 million. Presumably, we will be able to determine if these costs are a one-off increase when the Q2 results are published later this year.

Figure 5 – Rubrik Expenses by Quarter FY2023-FY2025

The Architect’s View®

Data protection is evolving into data loss prevention, incorporating cyber security. This transition is undoubtedly changing the total available market for vendors such as Rubrik, but it is not clear to us what $1.1 billion in research spending will produce. As an example, Commvault currently spends around $130-$150 million annually on R&D and that historically included creating the Metallic platform from scratch.

Rubrik may have ideas to radically change the data management and protection market, with new products and features yet undisclosed. We hope that there will be lots to talk about in the coming months that justify the apparent spending.