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Okta
delivered a “beat-and-raise quarter” Wednesday, as the identity management software provider posted stronger-than-expected financial results for its fiscal first quarter, while boosting guidance for the January 2024 fiscal year.
But concerns from the company about the macro environment seemed to send shares lower.
Okta (ticker: OKTA) attributed the strong results to the resilience of the identity and security software sector—despite what it sees as growing macroeconomic risks—along with a new focus on cost cutting.
For the quarter ended April 30, Okta posted revenue of $518 million, up 25% from a year ago and ahead of the company’s guidance range of $509 million to $511 million. Adjusted profits were 22 cents a share, roughly double the company’s forecast of 11 to 12 cents. Under generally accepted accounting principles, the company had a loss of $119 million, or 74 cents a share. The Wall Street consensus estimate called for revenue of $510.5 million and profits of 13 cent a share.
CRPO, or current remaining performance obligations, a measure of revenue to be booked within 12 months, was $1.7 billion, ahead of Okta’s forecast of $1.675 billion to $1.685 billion. Free cash flow jumped to $124 million, or 24% of revenue, up from $11 million a year ago, and above the fiscal fourth quarter total of $72 million.
CEO Todd McKinnon said in a statement that the results reflect the importance of identity software to its customers. “While macroeconomic pressures are increasing, we are well positioned to advance our leadership position by delivering valuable product innovation to our customers while delivering non-GAAP profit growth to our shareholders,” he said.
In an interview with Barron’s, McKinnon said Okta had a “solid quarter,” driven by “good foundational customer success…customers are finding value in what we’re doing.” He adds that the company is feeling some impact of the slower growth economy, with the number of new customers slowing from the recent past. He notes that some new deals are a little smaller than in past quarters, with companies placing more scrutiny on budgets.
McKinnon adds that the company has been planning for this environment for three quarters now, which has resulted in a tighter focus on spending. He also notes that results have benefitted from low turnover in the sales team, with an improving growing ability to cross sell products. That’s a reference to some previous issues merging the company’s own sales team with that of Auth0, which was acquired by the company in 2021 for $6.5 billion.
As for the Okta’s use of AI software, he says that it has helped the company gradually improve its algorithms for detecting security threats and blocking attacks. And he says the company is working on using AI to help customers choose the best configurations of Okta’s software.
“AI advantage goes to the companies with scale—the ones with the most data, and the most customers,” he said.
McKinnon also noted that the company acts as a picks-and-shovels provider to some AI providers. Okta provides the login software for ChatGPT.
For the July quarter, Okta sees revenue of $533 million to $535 million, with non-GAAP profits of 21 to 22 cents a share, above the Wall Street consensus forecast for $528 million and 17 cents a share.
For the January fiscal year, Okta now sees revenue of $2.175 billion to $2.185 billion, up 17% to 18%, above its previous forecast for 16% to 17% growth. The company now sees non-GAAP profits of 88 to 93 cents a share, up from a previous forecast of 74 to 79 cents.
Okta shares were initially down 19% in premarket trading the morning after the earnings report. Through Tuesday, the stock was up about 33% this year.
Write to Eric J. Savitz at eric.savitz@barrons.com
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