GauchoRico | 2026-02-22 | Q3 FY26 (ended Oct 31, 2025)
Q3 FY26 was Rubrik's best quarter since IPO — 48% revenue growth, first non-GAAP operating profit, FCF up 394% YoY to 76.9M, recordnetnewARR.Thestocksits 5050. Sounds great. My problem: strip out the material rights noise and you have a ~35% normalized grower decelerating from 54% a year ago. That doesn't pass my qualifying filter, and I want to be honest about that before I say anything else.
| Q4FY24 | Q1FY25 | Q2FY25 | Q3FY25 | Q4FY25 | Q1FY26 | Q2FY26 | Q3FY26 | |
|---|---|---|---|---|---|---|---|---|
| Jan-24 | Apr-24 | Jul-24 | Oct-24 | Jan-25 | Apr-25 | Jul-25 | Oct-25 | |
| Revenue ($M) [Non-GAAP] | 187.7 | 187.0 | 205.2 | 236.5 | 258.2 | 260.9 | 284.4 | 350.2 |
| YoY Growth % | — | — | — | — | 37.5% | 39.5% | 38.6% | 48.0% |
| QoQ Growth % | — | — | 9.8% | 15.2% | 9.2% | 1.1% | 9.0% | 23.1% |
| Subscription ARR ($B) | 0.82 | 0.88 | 0.98 | 1.01 | 1.10 | 1.17 | 1.26 | 1.35 |
| ARR YoY Growth % | — | — | — | — | 34.1% | 33.0% | 28.6% | 33.7% |
| Cloud ARR ($B) | — | — | — | — | 0.81 | 0.89 | 1.01 | 1.175 |
| Cloud % of ARR | ~74% | — | — | ~80% | ~74% | ~76% | ~80% | 87% |
| Gross Margin % [Non-GAAP] | 75.5% | 76.8% | 77.9% | 79.7% | 79.5% | 79.6% | 80.2% | 80.5% |
| Op Margin % [Non-GAAP] | -28.8% | -23.5% | -20.1% | -16.2% | -12.1% | -9.7% | -8.0% | +2.9% |
| FCF ($M) | -8.0 | 15.6 | -2.0 | 15.6 | 76.4 | 30.6 | 11.5 | 76.9 |
| FCF Margin % | -4.3% | 8.3% | -1.0% | 6.6% | 29.6% | 11.7% | 4.0% | 22.0% |
Note: Q3 FY26 revenue includes ~$68M material rights (non-recurring, one-time catch-up). Normalized revenue growth ~35% YoY.
| Factor | Score | Notes |
|---|---|---|
| 1. Revenue Growth >40% | ⚠️ BORDERLINE | 48% reported; ~35% normalized for material rights. Below my 40% threshold on apples-to-apples. |
| 2. Trajectory | ❌ DECELERATING | ARR growth: 34%→33%→29%→34% (oscillating, not accelerating). Revenue trajectory inflated by one-time items. |
| 3. Gross Margins | ✅ HIGH | 80.5% Non-GAAP. Expanding ~100bps/quarter. Excellent. |
| 4. Competitive Dominance | ⚠️ MODERATE | #3 in data protection behind Veeam. Cohesity-Veritas merger (19% combined share, 1.5BARR)isarealthreat.Identity(20M ARR) and Agent Cloud are early, not dominant. |
| 5. Valuation | ✅ FAIR-CHEAP | 9x EV/TTM on even 35% growth. If they sustain, stock is cheap. PEG of 0.26x vs CRWD's 0.60x. |
| 6. Special Circumstances | ✅ PRESENT | 50% below IPO peak. Profitability inflection. Identity + Agent Cloud optionality. FCF ramp steep. |
Overall: 3/6 clean passes, 2 borderline, 1 fail. This does not meet my typical qualifying threshold.
This is the central issue. Q3 FY26 revenue was 350M, but 68M came from material rights — a one-time accounting catch-up for software rights delivered but not yet revenue-recognized. This doesn't recur. Without it, Q3 revenue was ~$282M, implying ~19% QoQ normalized, and YoY growth of ~35%.
For FY27, that $68M headwind will need to be grown through organically. This is a meaningful drag on reported growth next year even if the business is healthy. Management was transparent about it, and Atlas noted it, but it's easy to anchor on that 48% headline and miss the setup.
FY26 guide: $1,280-1,282M revenue (~44% growth). That includes the material rights contribution. FY27 will face a higher comp base. I'd expect FY27 reported growth to step down to the low-to-mid 30s unless ARR accelerates materially.
Gross margin trajectory is exceptional. 75.5% → 80.5% over eight quarters. That's a business that keeps more of every dollar as it scales. Cloud mix shift (74% → 87% of ARR) is driving this. Cloud gross margins are higher than on-prem. This is the structural story working exactly as promised.
FCF inflection is real. $76.9M FCF in Q3 (+394% YoY) is not a fluke — it follows seasonal patterns (Q1/Q3 stronger) but the year-over-year improvement is dramatic. FY26 FCF guide: $194-202M implies 22%+ FCF margin. For a company that was burning $200M+ cash two years ago, this is remarkable.
Record metrics across the board. Net new ARR $94M (record), $1M+ customers 23 (record), $100K+ customers 2,638 (+27%). The customer expansion flywheel is working. NRR >120% means existing customers keep spending more.
Identity is the real optionality. $20M ARR doubling in one quarter. If Identity becomes a meaningful cyber security product attached to their data protection platform, this changes the TAM story. Rubrik could evolve from data protection to enterprise resilience + identity — a very different (and much larger) market.
Dilution is brutal. SBC is running ~24% of revenue. That means every dollar of reported progress is being partly funded by shareholder dilution. CRM — my benchmark for great FCF businesses — kept SBC well controlled. RBRK is still burning dilution at a rate I find uncomfortable. Fully diluted share count has grown ~58% since IPO. This matters for per-share value creation.
NRR stuck at 120%. It's not bad, but it's been exactly >120% for five consecutive quarters. If the platform is expanding into Identity and AI, I'd expect NRR to start moving up — not flatlining. That stall either means cross-sell isn't landing yet, or the land-and-expand thesis is slower than the narrative suggests.
Cohesity-Veritas is a genuine threat. The merger of #2 and the old #1 (Veritas) creates a combined entity with ~$1.5B ARR and 19% market share, eyeing a 2026 IPO. That's a well-funded competitor with enterprise relationships and they'll be fighting for the same $250K+ deals. I don't dismiss this.
ARR growth is not accelerating. 34%→33%→29%→34%. That's oscillation, not lift-off. The headline revenue numbers (48%) mask that the recurring revenue engine is growing at a third less. For me to get excited about a business, I want to see that ARR growth corridor moving up.
Material rights cliff in FY27. Covered above, but worth repeating: next year's reported comps will be tougher, and management's language on FY27 trajectory will matter enormously at the Q4 call (March 12).
I came away impressed with Bipul Sinha. He was direct about the material rights dynamic, didn't hide behind it, and kept re-anchoring analysts to ARR as the "true measure" of business health. That's what a confident CEO does. The profitability path is ahead of schedule — they guided to non-GAAP breakeven later in FY27 and hit it in Q3 FY26.
The FCF guidance (194 − 202MforFY26)requiresQ4toberelativelyweak( 6-30M FCF). That's consistent with seasonal patterns, but worth watching whether Q4 delivery comes in at the high or low end.
Promises I'm tracking:
| Metric | Value | Context |
|---|---|---|
| Stock price | ~$50 | 50% below IPO peak |
| Market cap | ~$10.2B | |
| EV | ~9.7B(netcash 500M) | |
| TTM Revenue | ~$1,094M | Q4FY25-Q3FY26 |
| EV/TTM Sales | ~8.9x | |
| FY26 Revenue guide | $1,281M | |
| EV/FY26 Revenue | ~7.6x | |
| FY26 FCF guide | ~$198M | midpoint |
| FCF yield | ~2.0% | improving rapidly |
| ARR growth | ~34% YoY |
At 9x EV/TTM on 34-35% normalized growth, this is not expensive. Compare to CRM in its high-growth era — I tracked CRM at 8-12x EV/Sales during its 30-35% growth years, and it was one of the best investments of that decade. RBRK at 9x with expanding margins and improving FCF is in that ballpark.
But there's a key difference: CRM at that price had cleaner growth (no material rights distortion), lower SBC ratios, and was already demonstrating NRR expansion. RBRK still has execution risk on the Identity/AI optionality and a tougher FY27 comp setup.
My rough 3-year target: If RBRK grows ARR at 30-35% for 3 years → ARR ~$3B+ → at 8x ARR → $24B EV → $55-60/share. If Identity + Agent Cloud accelerates growth back to 40%+, that number looks conservative. Roughly 15-25% IRR from here, with optionality upside. Not a screaming fat pitch, but not expensive for the quality.
I hold RBRK at 7.2% of portfolio plus 4.4% in Jan '27 85CLEAPS.TheLEAPSareunderwaterwiththestockat 50 vs $85 strike — a real mark-to-market loss I need to acknowledge.
The core question: Is this a 35% grower with decelerating ARR (hold, maybe trim) or a platform business at inflection that will re-accelerate to 40%+ (add)? The Q4 FY26 call on March 12 and the FY27 guidance will be decisive.
My action: Hold the equity. Evaluate LEAPS at Q4 earnings. I'm not adding here because:
If Q4 shows ARR growth pushing toward 37-38%+, Identity at $30M+ ARR, and FY27 guide implying 35%+ normalized growth — that's the signal to add. If ARR growth slips to sub-30% and FY27 guide disappoints, I'll trim.
Rating: Hold | Thesis: Intact but on watch | Conviction: 3/5
We will see what happens on March 12.
GR