Identity management software maker Okta (OKTA) announced better-than-expected results in the Q4 FY2023 quarter, with revenue up 33.2% year on year to $510 million. The company expects that next quarter's revenue would be around $510 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Okta made a GAAP loss of $153 million, improving on its loss of $241.2 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 FY2023 Highlights:
- Revenue: $510 million vs analyst estimates of $489.6 million (4.17% beat)
- EPS (non-GAAP): $0.30 vs analyst estimates of $0.09 ($0.21 beat)
- Revenue guidance for Q1 2024 is $510 million at the midpoint, above analyst estimates of $498.3 million
- Management's revenue guidance for upcoming financial year 2024 is $2.16 billion at the midpoint, missing analyst estimates by 0.29% and predicting 16.4% growth (vs 44.7% in FY2023)
- Free cash flow of $72 million, up from $5.72 million in previous quarter
- Gross Margin (GAAP): 72.7%, up from 68.9% same quarter last year
“We’re pleased with our fourth quarter financial performance and the continued improvement of our go-to-market execution,” 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 $234.7 million in Q4 FY2021, to $510 million.
And unsurprisingly, this was another great quarter for Okta with revenue up 33.2% year on year. Quarter on quarter the revenue increased by $29 million in Q4, which was in line with Q3 2023. 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 22.9% year on year to $510 million, slowing down from the 65.3% 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 $2.16 billion at the midpoint, growing 16.4% compared to 42.9% increase in FY2023.
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 72.7% in Q4.
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. Significantly up from the last quarter, 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 Q4 Results
Sporting a market capitalization of $11.4 billion, more than $2.58 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 deliver strong revenue growth this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations for both revenue and billings. Free cash flow in the quarter was also strong and outperformed expectations, a signal of leverage on expenses. On the other hand, the revenue guidance for the full year slightly missed expectations. Despite that, we think this was still a good quarter, showing the company is staying on target. The company is up 11% on the results and currently trades at $79.37 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.