OKTA FYQ1 2021 Results

Investment Analysis Clubs Saul’s Investing Discussions
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Q1 revenue grew 46% year-over-year; subscription revenue grew 48% year-over-year
Remaining performance obligations, or subscription revenue backlog, grew 57% year-over-year
Record operating and free cash flows

Revenue: Total revenue was $182.9 million, an increase of 46% year-over-year. Subscription revenue was $173.8 million, an increase of 48% year-over-year.
Remaining Performance Obligations (RPO): RPO was $1.24 billion, an increase of 57% year-over-year. Current RPO, which is contracted subscription revenue expected to be recognized over the next 12 months, was $619.1 million, up 49% compared to the first quarter of fiscal 2020.
Calculated Billings: Total calculated billings were $209.5 million, an increase of 42% year-over-year.
Operating Loss: GAAP operating loss was $52.2 million, or 28.5% of total revenue, compared to $51.8 million, or 41.4% of total revenue, in the first quarter of fiscal 2020. Non-GAAP operating loss was $12.3 million, or 6.7% of total revenue, compared to $24.9 million, or 19.9% of total revenue, in the first quarter of fiscal 2020.
Net Loss: GAAP net loss was $57.7 million, compared to $52.0 million in the first quarter of fiscal 2020. GAAP net loss per share was $0.47, compared to $0.46 in the first quarter of fiscal 2020. Non-GAAP net loss was $8.1 million, compared to $21.4 million in the first quarter of fiscal 2020. Non-GAAP net loss per share was $0.07, compared to $0.19 in the first quarter of fiscal 2020.

Shares are down modestly ($6) AH on what is seemingly good news.

They should be facing a covid-tailwind and once folks adopt OKTA they won’t give it up, even when they go back to the office.

It’s just too easy to have one password for a myriad of applications, not to mention the safety they provide

I think GAAP/Non-GAAP is holding shares down AH…shocker

Net Loss: GAAP net loss was $57.7 million, compared to $52.0 million in the first quarter of fiscal 2020. GAAP net loss per share was $0.47, compared to $0.46 in the first quarter of fiscal 2020. Non-GAAP net loss was $8.1 million, compared to $21.4 million in the first quarter of fiscal 2020. Non-GAAP net loss per share was $0.07, compared to $0.19 in the first quarter of fiscal 2020.

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RPO up as well…

over the next 12 months, rose 49% to $619.1 million. Overall RPO was $1.24 billion, up 57% year-over- year

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Listened to the conference call. From my viewpoint results were solid. Revenue growth of 46.1% increased sequentially from Q4’s 44.9% and Q3’s 45%.
Free cash flow increased, dollar based net retention rate increased to 121%, customers spending >$100k increased, and other measures were all good. Guidance remains positive for the year and long term. Speakers were all upbeat about new initiatives and future prospects.

Recognizing how “sell the news” seems to be popular among traders, I guess being down 1.6% after hours isn’t too surprising.

What I don’t understand is how Zscaler announced 39.7% revenue increase and is up 18% after hours. 39.7% is an improvement over previous quarter’s 36.3%, but long way from last year’s 61% growth.

They’re two different companies and this is only one metric. But if anyone has any insight into why the market responded so differently to the two reports, that would be appreciated. Only idea I have is that it’s a valuation thing. OKTA trades at such a higher multiple, they are “priced to perfection” and are expected to hit a higher number.

Thanks.
JT

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Just a quick one, still compiling my notes, but ZScalers conference call was extremely positive.

Previously, there was the “sales needs work, slowing cycles etc” message. Now, the message is “sales great, COVID tailwind, everything is awesome”.

ZS is half the EV of OKTA which is a big difference.

cheers
Greg

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I think next quarter forecast may explain the different ZS and OKTA’s after hours movements:
ZS forecast 38% growth (use the same beat level of this quarter it will be 42.5% growth - reaccelarate again from 40% this quarter)

OKTA forecast 33% growth (use the same beat level of this quarter it will be 40.6% growth - slow down quite a bit from 46% this quarter)

Nevertheless, ZS’s 40%+ growth is still well below its 50-60% growth last year and considering the huge price appreciation YTD, it is already fair to overvalued IMO. Still not as attractive as other names.

Zoro

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To be honest, I guess OKTA’s Q1 ER is a disappointment for many fools in the board since everyone of us used to believe the pandemic should be some kind of tailwind for OKTA. But it was just the opposite and here is what management said:

  • With these large enterprise customers and prospects, we did experience some projects getting more scrutiny, but believe in most cases, the project implementation and/or purchase decisions have been pushed out to a later date rather than canceled. These delayed decisions were primarily within the industries most impacted by the pandemic.
  • our expectation that pandemic-related headwinds that we began to see during the first quarter will persist and increase in Q2 and Q3 before we see a return to more normal business activity as we exit Q4. Our guidance is based on the current assumptions about the macro environment and impacts from the pandemic…we think about those heavier – stronger headwinds against us as we go into Q2 and Q3 in this medium-term
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I think they reported strong solid numbers. Sure I would have loved ‘Xmas comes early’ like with Twilio but Okta delivered very strong results and metrics are going in the right direction, despite paralysis in March-April.

Q1 FY21vs. Q1 FY20
Total Revenue$183M+ 46%
Subscription Revenue$174M+ 48%
Current Remaining Performance Obligations$619M+ 49%
Remaining Performance Obligations$1,240M+ 57%
Total Calculated Billings(1)$210M + 42%
TTM Dollar Based Net Retention Rate121%+ 200 bps
Non-GAAP Gross Margin(1)77.5%+ 180 bps
Non-GAAP Operating Margin(1)(6.7)%+ 1,320 bps
Free Cash Flow Margin(1)16.3%+ 580 bpsTTM
Total Rev. Growth + Free Cash Flow Margin (“Rule of 40”)54%(80) bps
Total Customers8,400+ 28%
Customers > $100K ACV(2)1,580+ 38%

I agree that the forecast was a bit bland but I think management takes a more cautionary approach and that they do not feel the pressure to hype their business (I will do that instead :)). I believe that there will be more tailwinds than headwinds moving forward (personal opinion) as digital transformation/work anywhere is accelerating and uncertainty is lowered.

I am super excited about this company’s long term prospects and would love to find out a bit more in their consumer offering (almost half of TAM) and how they will bring it to market. Any one got any info here on what they have sold (if anything)?

What now:
Sure there might be an opportunity to add a bit more in the next quarter or two at a lower price, but that opportunity is not enough to convince me to downsize my holdings today. Their moat is just formidable as the one neutral id platform.

Thanks everyone for your comments, keep them coming!
Niklas

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Zorosg, I agree that after-market move was based on headwinds expectations for Q2 and Q3.

I suggest to everyone to look at their most recent presentation. https://seekingalpha.com/article/4350675-okta-inc-2021-q1-re…

Please look at pages 29 and 30. For the next 4 years they expect rev growth in low to mid 30s and FCF margins in low to mid 20s. So, mid-term the business should be slowing from 40s to 30s and should become a cash machine. Question about sandbagging and valuation if they growth slows to 30s.

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They mentioned on the call they have 1,600 enterprise customers with 100k+ spend per year, and the annual contract value for these customers has increased by 50% year over year.

Had a number of big up-sells like T-mobile merging with Sprint, and they on-boarded 30,000 employees quickly.

Mentioned Zoom as a big up-sell as well using the ‘Advanced Server Access’ product, which sounds like something to access on-prem servers remotely.

Talked about a financial institution that had 20,000 of it’s 100,000 employees remote and how they all needed to switch to remote and upgrade their solution.

They did say their guidance is conservative on both the top and bottom line.

Overall it sounds largely positive.

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OKTA AND VEEV reported well yesterday,…and both are UP…among the few stocks that are UP in my Port. Stj.

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I just re-listened to the CC. This and last quarter what I heard was that OKTA is growing as fast as they feel they can ‘grow responsibly’ (referencing meeting the rule of 50 at last quarter CC. This quarter, Todd said they believe that Digital Transformation has grown ‘5 years in two months’. He did say this was thus far more of a ‘mental shift’ thus far for most.

When asked during questions portion what the tactical ramifications of this were compared to the strategic ramifications, Todd gave the example of Fed Ex ramping in three days what they’d planned would take most of a year and later the Zm example of utilizing ‘Advanced Server Access’, what was described a couple quarter ago as being what I’m sure is an over simplification as the SSO for managers to access Servers, and the craaaaazy ramp up that occurred at Zm with this product.

What I came away with was that Senior management at OKTA are anticipating the need to spend their $1B pulse cash on hand to ‘strategically’ take advantage of an avalanche of growth in the near future. - when more companies have increased visibility and they’re actually ready to pursue moving to the cloud with Zero Trust protection, like Fed Ex has and Zm has.

Am I the only one seeing this or am I reading too much into what was said in the last few Conference Calls trying to tie to many things together?

Jason

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Hopefully more clearly said…

When Todd said that OKTA is consumer focused I believe he’s letting the customers come to him and not spending too much on S&M, maintaining Rule of 50 growth perhaps when it would be much easier to grow faster. He refers often to growing depth as well as breadth. Perhaps those at OKTA need to take more time (grow revenue more slowly) to integrate more deeply with their existing customers and to do otherwise would, as they have said, ‘be irresponsible’? That Zm, CRWD and DDOG are able to grow so fast…is it that their products are not as deeply integrated with their customers as OKTAs products?

Answering my own question from my limited understanding is yes this the truth of it. I’d love to hear from you all.

Jason

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Jason, I think that it was a pretty positive call overall. I liked that part about Zoom. Looks like Zoom is mentioned during calls of many SaaS/IT companies. Let‘s see Zoom numbers to be reported next week.

Okta‘s management stressed that they are cautious for next 2 quarters. They mentioned along the lines of having one bigger invoice which helped 1q results. Overall, hopefully they‘ll be growing in 40s this year and in next few years decelerating in 30s. In their presentation in „higher“ growth scenario they say growth 35%+ in 2024.

My take is that Okta definitely is not in DDOG, CRWD or ZM growth territory. But it remains pretty solid company with solid growth and moat. Zoom is their client, Fedex is the client etc. Very solid company.

Okta is more comparable to Coupa. The main difference would be if Okta is decelerating and Coupa accelerating?

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I also heard that ‘Calculated RPO’, RPO for the next twelve months was in the 20% growth rate and ‘that should be used rather that rev growth’ due to things like lumpy sales.

That and the 35% forecast does have me concerned; but, sandbagging/being prudent is their m.o. and I just saw acceleration in rev growth and everything else in the call says Huge Growth Ahead!

I’ve read what others here so far have said. I just keep remembering what Saul always says, ‘Don’t even look at the projected numbers’.