Identity management software maker Okta (OKTA) reported Q2 FY2022 results topping analyst expectations, with revenue up 57.3% year on year to $315.5 million. Okta made a GAAP loss of $276.6 million, down on its loss of $60.1 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) Q2 FY2022 Highlights:
- Revenue: $315.5 million vs analyst estimates of $293.1 million (7.61% beat)
- EPS (non-GAAP): -$0.11 vs analyst estimates of -$0.33
- Revenue guidance for Q3 2022 is $326 million at the midpoint, above analyst estimates of $319.2 million
- The company lifted revenue guidance for the full year, from $1.22 billion to $1.24 billion at the midpoint, a 2.17% increase
- Free cash flow was negative -$3.76 million, down from positive free cash flow of $52.8 million in previous quarter
- Gross Margin (GAAP): 67.9%, down from 73.6% previous quarter
"In our first quarter as a combined company with Auth0, we're off to a fantastic start," said Todd McKinnon, Chief Executive Officer and co-founder of Okta.
Founded during the aftermath of the financial crisis in 2009, 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 in effect drives the need for identity and access management platforms that help companies efficiently manage who has access to what, and ensure that access privileges are secure from cyber criminals.
As you can see below, Okta's revenue growth has been impressive over the last year, growing from quarterly revenue of $200.4 million, to $315.5 million.
This was another standout quarter with the revenue up a splendid 57.3% year on year. On top of that, revenue increased $64.4 million quarter on quarter, a very strong improvement on the $16.2 million increase in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.
Analysts covering the company are expecting the revenues to grow 42.1% over the next twelve months, although we would expect them to review their estimates once they get to read these results.
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 400% since the IPO in December. You can find it on our platform for free.
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, licences, technical support and other necessary running expenses was at 67.9% in Q2.
That means that for every $1 in revenue the company had $0.67 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 it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.
Key Takeaways from Okta's Q2 Results
Sporting a market capitalization of $40.3 billion, more than $2.46 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, it was less good to see the pretty significant deterioration in gross margin. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is down -3.32% on the results and currently trades at $256 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.