Okta's (NASDAQ:OKTA) Q1 Sales Top Estimates But Stock Drops 12.2%

Full Report / May 31, 2023
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Identity management software maker Okta (OKTA) reported Q1 FY2024 results beating Wall St's expectations, 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.

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

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.

The founders Todd McKinnon and Frederic Kerrest were working at Salesforce at that time and saw how cloud was changing the world of enterprise software but also how companies struggled to keep track of all the logins for the new services they just subscribed to.

Instead of having to manage separate login details for each of the many software tools that an employee uses, Okta provides them with a single account (Single Sign-On) which employees then use to login into any service. That makes it a lot easier for companies to then, through a centralized system, manage who has access to what, set up automated rules to make sure that when employees leave access is withdrawn, and enforce policies around passwords and account security. Okta also provides companies with software that, in similar fashion, handles authentication and account details storage of their 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.

Okta has built a robust integration network with most of the popular software apps. This makes is a competitive player in a market which includes Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), and Ping Identity.

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.

Okta Total Revenue

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.


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.

Okta Gross Margin (GAAP)

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.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Okta's free cash flow came in at $124 million in Q1, up significantly year on year.

Okta Free Cash Flow

Okta has generated $177.6 million in free cash flow over the last twelve months, a solid 9.06% of revenues. This strong FCF margin is a result of Okta asset lite business model and provides it plenty of cash to invest in the business.

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.

Is Now The Time?

When considering Okta, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Okta we will be cheering from the sidelines. Its revenue growth has been exceptional, though we don't expect it to maintain historical growth rates. But while its strong free cash flow generation gives it re-investment options, unfortunately its gross margins aren't as good as other tech businesses we look at.

Given its price to sales ratio based on the next twelve months is 6.5x, Okta is priced with expectations of a long-term growth, and there's no doubt it is a bit of a market darling, at least for some. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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