Identity management software maker Okta (OKTA) announced better-than-expected results in the Q1 FY2024 quarter, with revenue up 24.8% year on year to $518 million. The company expects that next quarter's revenue would be around $534 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Okta made a GAAP loss of $119 million, improving on its loss of $242.7 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) Q1 FY2024 Highlights:
- Revenue: $518 million vs analyst estimates of $510.7 million (1.43% beat)
- EPS (non-GAAP): $0.22 vs analyst estimates of $0.12 ($0.10 beat)
- Revenue guidance for Q2 2024 is $534 million at the midpoint, above analyst estimates of $528.8 million
- The company reconfirmed revenue guidance for the full year, at $2.18 billion at the midpoint
- Free cash flow of $124 million, up 72.2% from previous quarter
- Gross Margin (GAAP): 72.6%, up from 68.5% same quarter last year
“We started the new fiscal year with strong non-GAAP operating profit and record cash flow, which is a testament to the actions we’ve taken to increase efficiency and profitability,” 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 impressive over the last two years, growing from quarterly revenue of $251 million in Q1 FY2022, to $518 million.
This quarter, Okta's quarterly revenue was once again up a very solid 24.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $7.79 million in Q1, compared to $29.2 million in Q4 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates Okta is expecting revenue to grow 18.2% year on year to $534 million, slowing down from the 43.2% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 15% over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 72.6% in Q1.
That means that for every $1 in revenue the company had $0.73 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year this is around the average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market, so it is important to track.
Key Takeaways from Okta's Q1 Results
Sporting a market capitalization of $14.6 billion, more than $2.37 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.
It was good to see Okta provide next quarter revenue outlook exceeding analysts’ expectations. And we were also happy to see strong free cash flow. Zooming out, we think this was a decent quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 12.2% on the results and currently trades at $79.9 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.