Identity management software maker Okta (OKTA) reported Q3 FY2023 results beating Wall St's expectations, with revenue up 37.1% year on year to $481 million. The company expects that next quarter's revenue would be around $489 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Okta made a GAAP loss of $208.8 million, improving on its loss of $221.3 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 FY2023 Highlights:
- Revenue: $481 million vs analyst estimates of $465.3 million (3.36% beat)
- EPS (non-GAAP): $0.0 vs analyst estimates of -$0.24 ($0.24 beat)
- Revenue guidance for Q4 2023 is $489 million at the midpoint, roughly in line with what analysts were expecting
- Free cash flow of $5.71 million, up from negative free cash flow of $24.1 million in previous quarter
- Gross Margin (GAAP): 71.3%, up from 68.9% same quarter last year
“We’re pleased with our third quarter results and the early traction of our refined go-to-market strategy as identity continues to be a long-term, strategic investment for our customers,” 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.
As you can see below, Okta's revenue growth has been exceptional over the last two years, growing from quarterly revenue of $217.3 million in Q3 FY2021, to $481 million.
And unsurprisingly, this was another great quarter for Okta with revenue up 37.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $29.2 million in Q3, compared to $36.8 million in Q2 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 27.6% year on year to $489 million, slowing down from the 63.1% 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 25.3% 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.
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 71.3% in Q3.
That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the lower 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 Q3 Results
With a market capitalization of $8.14 billion Okta is among smaller companies, but its more than $249.6 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.
We enjoyed seeing Okta’s impressive revenue growth this quarter. And we were also glad to see the improvement in gross margin. Overall, this quarter's results seemed positive and shareholders can feel optimistic. The company is up 12.3% on the results and currently trades at $59.92 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.