I posted this on the OKTA board but thought some people over here might find it helpful…
Brief Summary
OKTA just reported Q1 2019 earnings and it looks pretty good. Revenue up 60% and subscription revenue up 59%. Gross margin up to 71% and free cash flow margin almost at breakeven at -2% up from -25% a year ago. So everything is trending in the right direction. I’ll give the last press release for some context as well, then give some more thoughts down below.
Fourth Quarter Fiscal 2018 Financial Highlights:
Revenue: Total revenue was $77.8 million, an increase of 59% year-over-year.
Subscription revenue was $72.0 million, an increase of 64% year-over-year.
Operating Loss: GAAP operating loss was $25.3 million, or 32.6% of total revenue, compared to $18.0 million in the fourth quarter of fiscal 2017, or 36.8% of total revenue.
Non-GAAP operating loss was $10.8 million, or 13.9% of total revenue, compared to $12.7 million in the fourth quarter of fiscal 2017, or 25.9% of total revenue.
Cash Flow: Net cash provided by operations was $0.2 million or 0.2% of total revenue, compared to cash used in operations of $6.7 million or 13.7% of total revenue, in the fourth quarter of fiscal 2017.
Free cash flow was negative $2.2 million, or 2.8% of total revenue, compared to negative $9.8 million, or 20.1% of total revenue, in the fourth quarter of fiscal 2017.
Cash, cash equivalents and short-term investments were $229.7 million as of January 31, 2018.
First Quarter Fiscal 2019 Financial Highlights:
Revenue: Total revenue was $83.6 million, an increase of 60% year-over-year. Subscription revenue was $76.8 million, an increase of 59% year-over-year.
Operating Loss: GAAP operating loss was $25.0 million, or 29.9% of total revenue, compared to $27.4 million in the first quarter of fiscal 2018, or 52.4% of total revenue.
Non-GAAP operating loss was $10.8 million, or 13.0% of total revenue, compared to $18.5 million in the first quarter of fiscal 2018, or 35.4% of total revenue.
Cash Flow: Net cash provided by operations was $4.0 million, or 4.8% of total revenue, compared to cash used in operations of $9.7 million, or 18.5% of total revenue, in the first quarter of fiscal 2018.
Free cash flow was negative $1.6 million, or 1.9% of total revenue, compared to negative $13.3 million, or 25.5% of total revenue, in the first quarter of fiscal 2018.
Cash, cash equivalents and short-term investments were $547.0 million as of April 30, 2018.
My Thoughts
OKTA’s stock before this week was completely on fire. As some people posted on this board, there was an analyst downgrade on valuation concerns. Which, in my opinion, was unsurprising. OKTA’s $6 billion market cap, on around $280 million TTM revenue, was 21.4x sales, one of the pricier multiples on the market today.
However, you can’t say the company isn’t performing. Management seems to sandbag guidance as this quarter’s 60% revenue growth far surpassed management’s 48% estimate. And next quarter’s guidance calls for 1% sequential growth in what has been the stronger quarter sequentially thus far. Last year, in Q2 2018, OKTA did 15% sequential growth so 1% looks to be extreme sandbagging. I don’t think the market is taking the guidance seriously either though because, after last earnings, the stock took off.
The company expects to be free cash flow positive soon and it made great headway this quarter, almost reaching that point, even though a big portion came from stock based compensation.
On the guidance side, the company projects a bigger relative operating loss in Q2 than last year which I think is also sandbagging. Management is not dumb though. There is no reason to boost guidance more than they have since the valuation of this stock is so rich.
All in all, everything trended in the right direction. Business as usual. I can’t make any comments on how the stock is going to move, you just never know…
Very best,
CMFish: OKTA Ticker Guide