My take on Okta's results

Investment Analysis Clubs Saul’s Investing Discussions
1

Hey guys, quit obsessing over the nonsense guidance. Look what the goddamn company did in the last year!

Revenue was $399 million, up 56%.

Subscription revenue was $371 million, up 57%, and 93% of revenue.

Adj operating loss was $41.5 million, or 10% of revenue, improved from $61 million or 24% of revenue.

Adj net loss was $34 million, a loss that’s 42% less than their loss last year of $59 million. It was just 8.5% of revenue instead of 23% of revenue

Adj EPS was minus 32 cents, improved hugely from minus 71 cents.

Op Cash Flow was plus $15 million, improved by $40 million from minus $25 million a year ago.

Free cash flow was minus $7 million, or 1.7% of revenue, improved by $30 million from minus $37 million, or 14.5% of revenue.

Free cash flow for the last quarter was positive $4.8 million.

Adj Gross margin percent was 75.0%, up from 71.5% a year ago, and the last quarter was the best ever at 76.4%

Total customers were up 40%

Customers over $100k were up 50%

Dollar-based net expansion rate was steady at 120% for the quarter

Do you see anything? ANYTHING at all? to worry about???

Saul

And thanks to RoyGeeBee for some of the stats.

102 Likes
2

Some quick points from the analyst call:

  1. Competition: in the last 18 mon we are in more deals. More deals happening and happening faster. We are the only independent and neutral identify vendor. Our reputation for success is accelerating

  2. Cloud is at tipping point where companies have to have security in place. • It is very early stage and we are helping company transform to cloud. Time ahead is very very exciting for us and our customers

  3. Moving to cloud is a global trend happening everywhere. North America taking lead and Asia is growing fast. both in public and private sectors. Intl now 47% of total company rev, it is going to be future growth driver

  4. FCF: expecting to be positive on FY basis in 2020 vs. $-7M in 2019

  5. Todd: company is 2 yrs old now. I am more excited than ever. Happy to take on more responsibility and we are working on execution

  6. When asked if guidance 'sand bagged": Our Investment thesis is consistent w/ 5 yr plan previously published with Op Income margin goal of 15-16% by 2024

11 Likes
3

And as has been pointed out, last year they guided to 35% and they just came in at 56%. So are you really going to worry about guidance??? Geez!!!

Saul

11 Likes
4

Thanks Saul, And didn’t you just love hapearing the CEO say the word ‘tipping point’ referring to ‘landing bigger deals faster’ what was it four or five times. And stating at least three time that this is ‘the very beginnings of these global trends’ giving us this opportunity.

1 Like
5

Nobody mentioned that OKTA also announced an acquisition of a company I’d never heard of (Azuqua), so that will take time to absorb.
As I know then in the short term then any acquisition costs a lot more money than you pay for them since you have to change a ton of stuff:

1: Their R&D needs to realign to focus on what benefits they can bring to OKTA.
2: Support, sales and marketing need to be retrained.
3: HR, finance and operations need to be consolidated.
4: There will be some redundancies due to the above overlapping job roles hence payoffs to those losing their jobs.

And other stuff, like integration of company culture, benefits parity etc.

But these are short term (3-6 month) issues and the long term benefits will only become clearer after that time.

A short term hit for a medium and long term gain is fine in my book.

Cheers, PB.

6 Likes
6

In the conference call this acquisition was fleshed out as an orchestration of all the okta plug ins, being developed for the most security sensitive enterprise situation of ACIM accessing servers and how okta would have concrete integration through its products within a year. My favorite tidbits were when identity management as a growth driver was highlighted, watch out Sail?

2 Likes
7

ACIM should read Administration, :neutral_face:

8

Excellent numbers and even more convinced than before that be it algorithms, dumb analysts,smart analysts, market makers, but mostly fairly astute ones are just playing the usual game here, they know exactly what is going on…mark it down…5-10% more the merrier. I will snap them up.

1 Like
9

Expenses: Q4 from Q4

S&M 55.5m from 40.3m
R&D 23.2 from 14.2
G&A 14.5 from 11.6
Headcount 1561 from 1173

They’re growing so fast it’s surprising expense increase wasn’t higher.

Have $564 million in Cash.

Reference the Earnings Call transcript.

3 Likes
10

Solid earnings from Okta as I expected.

On the “issue” with bottom line forecast.

As Todd mentioned, we announced today that we have signed an agreement to acquire Azuqua for total cash consideration of approximately $52.5 million, which we expect will close in Q1 subject to certain closing conditions. I want to highlight that given the timing of the expected close, our guidance includes the anticipated impact for Q1 and the fiscal year.

In particular, we are forecasting minimal revenue impact and an approximately 200 basis point impact to operating margin in both Q1 and for the full year. We are looking forward to welcoming the Azuqua team to Okta and the long-term opportunity we expect this acquisition will bring to our platform and the acceleration of our Okta integration network.

I would also like to remind everyone for your models that Q1 each year experiences operating margin seasonality due to the reset of payroll taxes and our annual worldwide sales kick-off. Also note that this year, Oktaane has moved to Q1 from Q2 last year.

So they are paying cash for the acquisition in combination with seasonally lower margins due to normal business dynamics. And a move forward of their biggest marketing campaign.

In other words, no, they are not having problems with leverage or whatever. Business is solid as it was yesterday and the day before. Algo’s or people trading on headlines are giving a nicer price point to add/enter.

Darth

18 Likes
11

Down somewhat in premarket (on a down day overall - China and Jobs). I think guidance was lower than expected. Wonder if this is a buying opportunity.

-----
Invest wisely my friends
CMFSoloFool - Ticker Guide / Share Holder
Profile and holdings: https://goo.gl/TYTU4S

12

Well earnings to me only show a company doing very well in a high growth industry, it’s a great future in front of it.

Anytime I see a sell off like this I will take the opportunity to buy or add shares to a great little gem of a company like this.

I looked at a chart, saw 70 as support and put a limit order in last night at 70.50 which hit this morning.

I would say that the majority of the time when I put in a limit order just above a trend or support line when I know the next morning the market is going to overreact I get the shares.

I have no problem with stock prices going down and giving me cheaper shares along the way on a path to owning great investments.

If the story stays intact I only care that two or three years from now the stock price is a lot higher.

Chris

15 Likes
13

The fact that they pushed their profitability forecasts out a couple more years is worrisome, of course.

Long OKTA,

2 Likes
14

Thank you Saul!! With your analysis I felt confident to add another 100 shares at 71 this morn
I looked for where some support might be then saw this post and put in my order So Thank You for such a clear concise break down!!

1 Like
15

Just doubled my position in OKTA, very solid report.

16

Also note that this year, Oktaane has moved to Q1 from Q2 last year.

Wow, Darth, thanks for picking up on that. How did we all miss it. Moving their big conference to the first quarter certainly helps to explain increased expenses in the first quarter (plus the expenses connected with closing the acquisition). Thanks so much!
Saul

9 Likes
17

Saul:

I think you are looking at the past several quarters and you are checking if the growth trend is still continuing. If it is then you feel good about staying in the stock and even considering buying more.
Certainly some will say that the stock price is about the future. But they focus too much on the short term and this next quarter guidance. In fact I think they should not and they should focus in the longer term. I don’t want to fret about short term volatility. But the market is the market and the stock pulled back.
I think the difference between you and them is that you look at what it has done and what it is doing now and you want to see it before you do anything. But you are ready to abandon ship if the report is not good (growth slowing etc…). As the general rule, there is a high chance you would sell if they did not put out a good quarter. Am I right? Or do you need to look at a few quarters before deciding to pull out if it trend in the wrong direction? In other words your focus is also towards the shorter to mid term but you feel you are in good businesses and until it actually report a bad quarter you will stay in. Inevitably there will be a bad quarter, and you will bail. I don’t think you are the one to stay in and think that it is a temporary bad situation or wait for a longer term turn around. In that sense you also have a shorter term view. The difference is you want to see the data before acting while some others play on the short term ‘guidance’.
I did buy more earlier today:-).

tj

18

I think you are looking at the past several quarters and you are checking if the growth trend is still continuing. If it is then you feel good about staying in the stock and even considering buying more.

Hi tj, there is some accuracy in that. Also there is a big difference between a great report and a euphoric conference call, where they say over and over that they are at a tipping point and everyone needs them, and they are signing bigger and bigger companies faster and faster, and then they guide lower so they can beat guidance every quarter, and raise guidance every quarter on the one hand (Okta)… and a company where they are almost mournful in their conference call, because they messed up and revenue growth really is plummeting on the other hand (Nutanix). Those are not the same situations at all.

If you have any question, just read the Okta conference call. They are euphoric and bubbling over with excitement at how well their business is going! Yes, they will increase R&D and S&M spending… because they feel they have such a huge greenfield in front of them, and little or no competition, and they want to grab as much as they can as fast as they can. (By the way, anyone who still sees Okta as just a sign-on helper needs to read the conference call. They are now doing much, much, MUCH, more.

And I did sell out of all my Nutanix the day after earnings, starting as fast as I could in the pre-market. And I did add a small amount (it’s almost an 11% position, after all) to my Okta today, the day after earnings, after I read the conference call carefully.

Best,

Saul

25 Likes
19

They are euphoric and bubbling over with excitement
actually that makes me nervous, because in the real world there are always problems and euphoria is not the best way to find them before they get big. Like Nutanix’s sales problems…

One comment I keep reading over and over in conference calls is that despite all the press on the Cloud ,it is still very much in it’s early days