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Okta (NASDAQ:OKTA) Reports Bullish Q3 But Stock Drops


Kayode Omotosho /
2021/12/01 4:13 pm EST
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Identity management software maker Okta (OKTA) reported Q3 FY2022 results topping analyst expectations, with revenue up 61.3% year on year to $350.6 million. Guidance for next quarter's revenue was $359 million at the midpoint, which is 1.1% above the analyst consensus. Okta made a GAAP loss of $221.3 million, down on its loss of $72.7 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) Q3 FY2022 Highlights:

  • Revenue: $350.6 million vs analyst estimates of $327.4 million (7% beat)
  • EPS (non-GAAP): -$0.07 vs analyst estimates of -$0.23
  • Revenue guidance for Q4 2022 is $359 million at the midpoint, above analyst estimates of $355 million
  • Free cash flow of $33.3 million, up from negative free cash flow of $3.75 million in previous quarter
  • Gross Margin (GAAP): 68.7%, down from 73.8% same quarter last year

"Our strong third quarter results reflect the continued shift to Identity-First architectures and the critical adoption of Zero Trust security environments, which are both propelling our market leading position," 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 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.

Sales Growth

As you can see below, Okta's revenue growth has been impressive over the last year, growing from quarterly revenue of $217.3 million, to $350.6 million.

Okta Total Revenue

This was another standout quarter with the revenue up a splendid 61.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $35.1 million in Q3, compared to $64.4 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 39.8% over the next twelve months, although estimates are likely to change post earnings.

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.

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 Q3.

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. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from Okta's Q3 Results

Sporting a market capitalization of $33.2 billion, more than $2.48 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. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. But investors might have been expecting more and the company is down 8.06% on the results and currently trades at $182 per share.

Okta may have had a good quarter, so should you invest 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.