Okta Delivers a Surprising Surge in Growth

Okta‘s (NASDAQ: OKTA) shares rose 31% in the three months after its fourth-quarter earnings report, and optimism continued to build coming into its fiscal first-quarter 2019 report on Wednesday. The niche start-up that calls itself “the leading independent provider of identity for the enterprise” did not disappoint, easily beating its own guidance, and demonstrating that it has been executing on a number of its strategic goals.

Okta results: The raw numbers

Metric Fiscal Q1 2019 Fiscal Q1 2018 Year-Over-Year Change
Sales $83.6 million $52.3 million 59.8%
Net income from continuing operations ($26 million) ($27.7 million) N/A
Adjusted earnings per share* ($0.09) ($0.47) N/A

*The number of shares outstanding nearly tripled between these periods due to the company’s April 2017 IPO. Data source: Okta

Image source: Okta.

What happened this quarter

In March, management projected revenue growth of 49% to 50% to between $78 million and $79 million, and an adjusted per-share loss of $0.16 to $0.15. But Okta’s growth surged in the period, which ended April 30, and the company easily exceeded those targets.

In addition, the company expanded relationships with companies like Mattel and FICO, and opened new accounts with customers like Warner Music.

In May, the company held its annual Oktane customer conference, which helps it build new customer relationships, broaden awareness about the Okta Identity Cloud, and tout its new products.

Okta’s revenue gains were particularly encouraging as they came in spite of slowing growth in sales and marketing expenses, which are Okta’s biggest budgetary line item. Sales and marketing expenses grew 40.2% in the quarter to $49.5 million, and soaked up 59.2% of revenue, but the fact that revenue grew at a significantly faster rate shows that the company could quickly build operating leverage and turn profitable faster than expected if those trends continue. It also explains why its operating loss in the quarter narrowed from $18.5 million a year ago to $10.8 million.

What management had to say

“We had another strong quarter and a fantastic start to the year,” said CEO Todd McKinnon in the earnings press release. “Coming off the heels of Oktane18, our annual customer conference, it’s clear that organizations see the strategic importance of identity and Okta’s value as an independent and neutral cloud platform. Our growth is driven by three areas of focus that align with the needs of our customers: connecting people seamlessly to all of their technologies, providing an identity layer for customer facing applications, and strengthening security while making technology easier to use. The power of the Okta Integration Network with the Okta Identity Cloud uniquely positions us as the leading identity platform.”

Management also highlighted 17 major new or expanded deployments with customers including Hitachi, the City of Oakland, and Leicester City Football Club. Its paying customer base is now made up of more than 4,700 organizations.

Looking ahead

Okta offered solid guidance for its fiscal second quarter, and raised its outlook for the year. The company forecasts revenue in the $84 million to $85 million range for the period, representing growth of 39% to 41%, and an adjusted loss per share of $0.21 to $0.20, which compares to a loss of $0.16 per share the year before.

For the full fiscal year, Okta said it expects revenue will grow by 38% to 39%, to $353 million to $357 million, and an adjusted per-share loss of $0.58 to $0.54, contracting from last year’s $0.77 loss. That was an improvement from its previous guidance for 33% to 35% revenue growth and an EPS loss in the range of $0.67 to $0.62.

Okta appears to be firing on all cylinders. Building on the momentum generated by the Oktane18 conference, it could see strong round of growth in its fiscal Q2 as well.

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Jeremy Bowman owns shares of Okta. The Motley Fool owns shares of and recommends Okta. The Motley Fool has a disclosure policy.

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