Okta's (NASDAQ:OKTA) Q4 Sales Beat Estimates, Stock Jumps 18.7%

Full Report / February 28, 2024

Identity management software maker Okta (OKTA) reported Q4 FY2024 results exceeding Wall Street analysts' expectations, with revenue up 18.6% year on year to $605 million. Guidance for next quarter's revenue was also optimistic at $604 million at the midpoint, 3.3% above analysts' estimates. It made a non-GAAP profit of $0.63 per share, improving from its profit of $0.30 per share in the same quarter last year.

Okta (OKTA) Q4 FY2024 Highlights:

  • Revenue: $605 million vs analyst estimates of $587.6 million (3% beat)
  • EPS (non-GAAP): $0.63 vs analyst estimates of $0.51 (24% beat)
  • Revenue Guidance for Q1 2025 is $604 million at the midpoint, above analyst estimates of $584.5 million
  • Management's revenue guidance for the upcoming financial year 2025 is $2.5 billion at the midpoint, beating analyst estimates by 1.1% and implying 10.5% growth (vs 22% in FY2024)
  • Free Cash Flow of $166 million, up 10.7% from the previous quarter
  • Gross Margin (GAAP): 76%, up from 72.8% in the same quarter last year
  • Market Capitalization: $14.37 billion

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system, manage who has access to what, set up automated rules to make sure that when employees leave access is withdrawn, and enforce policies around passwords and account security.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.

Identity Management

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 very strong over the last two years, growing from $383 million in Q4 FY2022 to $605 million this quarter.

Okta Total Revenue

This quarter, Okta's quarterly revenue was once again up 18.6% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $21 million in Q4 compared to $28 million in Q3 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Okta is expecting revenue to grow 16.6% year on year to $604 million, slowing down from the 24.8% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $2.5 billion at the midpoint, growing 10.5% year on year compared to the 21.8% increase in FY2024.


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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 76% in Q4.

Okta Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Okta's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Okta's free cash flow came in at $166 million in Q4, up 129% year on year.

Okta Free Cash Flow

Okta has generated $489 million in free cash flow over the last 12 months, an impressive 21.6% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.

Key Takeaways from Okta's Q4 Results

It was great to see Okta's optimistic revenue guidance for next quarter, which exceeded analysts' expectations. We were also glad its revenue in Q4 outperformed Wall Street's estimates, alongside strong free cash flow. Overall, this quarter's results seemed positive and shareholders should feel optimistic. The stock is up 18.7% after reporting and currently trades at $103.74 per share.

Is Now The Time?

When considering an investment in Okta, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We think Okta is a solid business. We'd expect growth rates to moderate from here, but its . On top of that, its customers are increasing their spending quite quickly, suggesting they love the product and its bountiful generation of free cash flow empowers it to invest in growth initiatives.

The market is certainly expecting long-term growth from Okta given its price-to-sales ratio based on the next 12 months is 5.9x. There are definitely things to like about Okta and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

Wall Street analysts covering the company had a one-year price target of $87.75 per share right before these results (compared to the current share price of $103.74).

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