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Okta (NASDAQ:OKTA) Beats Q4 Sales Targets But Growth To Slow Down Next Year


Adam Hejl /
2022/03/02 4:09 pm EST
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Identity management software maker Okta (OKTA) reported results ahead of analyst expectations in the Q4 FY2022 quarter, with revenue up 63.1% year on year to $383 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $389 million at the midpoint, 3.76% above what analysts were expecting. Okta made a GAAP loss of $241.1 million, down on its loss of $75.8 million, in the same quarter last year.

Is now the time to buy Okta? Access our full analysis of the earnings results here, it's free.

Okta (OKTA) Q4 FY2022 Highlights:

  • Revenue: $383 million vs analyst estimates of $359.7 million (6.45% beat)
  • EPS (non-GAAP): -$0.18 vs analyst estimates of -$0.24
  • Revenue guidance for Q1 2023 is $389 million at the midpoint, above analyst estimates of $374.9 million
  • Management's revenue guidance for upcoming financial year 2023 is $1.78 billion at the midpoint, beating analyst estimates by 1.76% and predicting 37.2% growth (vs 54.7% in FY2022)
  • Free cash flow of $5.03 million, down 84.9% from previous quarter
  • Gross Margin (GAAP): 68.7%, down from 73.9% same quarter last year

"Identity management is at the forefront of today's rapidly evolving security environment," said Todd McKinnon, Chief Executive Officer and co-founder of Okta.

Founded during the aftermath of the financial crisis in 2009, Okta (NASDAQ:OKTA) is a cloud-based software as a service platform that helps companies manage identity for their employees and customers.

As software penetrates corporate life, employees are using more apps every day, on more devices, in more locations. This drives the need for identity and access management software that help companies efficiently manage who has access to what, and ensure that access privileges are secure from cyber criminals.

Sales Growth

As you can see below, Okta's revenue growth has been exceptional over the last year, growing from quarterly revenue of $234.7 million, to $383 million.

Okta Total Revenue

This was another standout quarter with the revenue up a splendid 63.1% year on year. Quarter on quarter the revenue increased by $32.3 million in Q4, which was roughly in line with the Q3 2022 increase. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates Okta is expecting revenue to grow 54.9% year on year to $389 million, improving on the 37.2% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.78 billion at the midpoint, growing 37.2% compared to 54.7% increase in FY2022.

There are others doing even better than Okta. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Okta's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 68.7% in Q4.

Okta Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.68 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and we would like to see it start improving.

Key Takeaways from Okta's Q4 Results

Sporting a market capitalization of $28.6 billion, more than $2.5 billion in cash and with positive free cash flow over the last twelve months, we're confident that Okta has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Okta delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, the revenue guidance for next year indicates a slowdown. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But investors might have been expecting more and the company is down 3.63% on the results and currently trades at $176 per share.

Should you invest in Okta right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.