My notes from their Q4…
Some main notes:
Acquisition of Azuqua [no-code, cloud-based integration platform that automates workflows between apps and services]
“Identity is a big strategic investment for these companies. Consistent win-rates. Good reputation now, with bigger companies. Hitachi example, companies paying more after the win. We’ve got good examples of wins now, which will lead to more wins etc.”
“The global IT market is $1 trillion. But cloud is only 20% of that… (therefore) can’t trust network perimeter because 20% of things are in the cloud…”
“100% of customers have hybrid strategy” ← ramifications for Nutanix?
- It was a good quarter, strong in all areas.
- Wasn’t an unexpectedly amazing quarter, so not much stock price action.
- Okta is at an early part of the identity consolidation wave, which will take years to play out. This means big opportunity, but ‘years to play out’ also brings uncertainty. Landing now sets them up for that longer-term play.
- The identity problem is a problem that must be solved for businesses. If not Okta, then who?
I’m not buying now, but will add on any weakness.
Strongest quarter ever, revenue +50%, subs +53%, billings +52%. And positive fcf of $4.8m.
500 net new customers. +101 in the $100k+ bracket, to 1038.
vvvvvvvvvvvvv GD musings - feel free to ignore vvvvvvvvvvvvvvvvvvv
GD: The thing that strikes me about Okta is that the identity management problem of on-and-off cloud environments must be solved. You can either solve it, but throwing people at it or, use a service like Okta.
The other thing that strikes me is that this problem (I believe) is at the beginning of the cloud shift. Okta should be well positioned to float on that tide for years to come.
- Large organisations
- Network effects
- Customer identity & Security
“Identity and access management is not new to these organizations, but our customers recognize that legacy identity solutions weren’t built for heterogeneous hybrid environments.”
“We connect to every technology our customers want to use and we enable them to retire legacy identity solutions and can save them millions of dollars over time.”
6000 pre-built integrations.
Breadth + depth
Acquisition of Azuqua [no-code, cloud-based integration platform that automates workflows between apps and services]
GD: Looks like Azuqua connects SaaS apps via their APIs, similarly to Zapier. Zapier is the one I know, which lets you set up ‘zaps’ which get called from an event in one SaaS product and create a new action in another.
Why this sort of thing would appeal to Okta? More complex workflows is what they’re saying.
…“we believe we can uniquely serve as a single identity standard for them to manage and secure every type of user in their ecosystem.”
The Okta identity cloud lays the foundation for zero-trust.
10-year anniversary, momentum on our side!
Revenue Q4: $115m +53%yoy, 94% of total revenue.
International revenue: 15% of total, inline yoy.
Billings up 52%, driven by new and existing enterprise and commercial.
Early stages of partner channel, but increased traction. Total customers 6100, record 500 net new.
1038 >$100k customers, up 101 from Q3. Most were new customers.
DBNRR = 120%
Subscription Gross Margin: 82.4% +160bp. Total GM: 76.4% +250bp yoy.
Gross profit: 88.2m up 55%
Improving opex percent (52% revenue → 48%)
Increase in R&D % (18% revenue->20%)
G&A improvement (15% revenue->13%)
Q1 2020: $116-117m (39%-40%)
FY 2020: $530-535m representing a growth rate of 33% to 34% year-over-year.
Q: Stock reacting AH, due to margin guidance? Unexpected extra level of investment.
A: Bigger opportunity… Investments consistent with 5-year model (Investor Day), and on-track to hit 16-19% Opmargin by 2024.
Q: Real world example of Azuqua and Okta?
A: Revenue immaterial. Example? Global company that has several disparate HR systems and several hundreds of applications. Azuqua and that technology can let you basically express any type of workflow between those backend. “So that’s why it’s really going to take the lifecycle management product and really super charge that and really help us capture that big opportunity.”
Q: Competitive dynamics. Whats your win rate look like? Less or more competition?
A: We’re in more deals. “…more deals happening, happening faster…”. Identity is a big strategic investment for these companies. Consistent win-rates. Good reputation now, with bigger companies. Hitachi example, companies paying more after the win. We’ve got good examples of wins now, which will lead to more wins etc.
Q: Accelerated investment in international?
A: Investing in go-to market. “We are investing more customer-facing headcount”. Partner channel getting traction.
Q: Whats giving customers confidence zero-trust can be achieved? Removal of legacy technology?
A: Zero-trust means you don’t trust your network
GD: Imagine if you didn’t have any network security. You’d have to have every user/service identify itself for every call. This actually seems pretty reasonable. Essentially, Okta would operate as that validator, every service receiving a calling identity, and having Okta validate (not necessarily on-the-fly, perhaps encryption-based, eg: JWT).
The global IT market is $1 trillion. But cloud is only 20% of that. It’s only about $200 billion, if you add up all the infrastructure to service, all the SaaS apps, all that stuff. It’s still only 20%. So we are basically at a tipping point where companies have so much cloud now that they really have no choice. They can’t trust the perimeter because 20% things aren’t in their perimeter.
Q: Are your initial lands getting larger?
A: Yes. Across verticals and geographies. Just getting started with largest companies
Q: Monetizing Azuqua? Is it going to be a standalone solution? Or is it just something that will enhance the lifecycle management products?
A: Enhance lifecycle management products, maybe break out as a separate product.
Q: Margins trending 2020-24?
A: We’re showing leverage in operating margin. But going to invest, so not going to be linear between now and 2024.
Q: Three tailwinds: cloud, digital transformation and security, global tailwinds?
A: Yes. North America a little ahead in adoption. Europe, Asia-pacific picking up.
Q: “it’s nice to see such large growth in your enterprise customer. And I was wondering if you could talk about how the go-to-market strategy is different on that side?”
A: Tipping point, large organizations are understanding that there is a lot of value for them. We’re hiring more account executives. Think you’ll continue to see acceleration.
Q: Businesses at work report (here)[https://www.okta.com/businesses-at-work/2019/]. HybridIT - new customers, hybrid IT focus in terms of securing hybrid IT as opposed to just straight-up cloud deal for just securing cloud apps?
A: 100% have hybrid [GD:!!! I guess this makes sense, since everyone will use some SaaS products, and hardly anyone will be all cloud]. “And it’s just the degree to how much hybrid. But – so, especially in the world’s largest organizations, hybrid is more important. So that’s why over the past few years, we’ve invested so heavily in making sure the Okta Identity Cloud is integrated to everything.”
Q: How to think about free cash flow for FY 2020?
A: We expect to be free cash flow positive for this fiscal year for fiscal year 2020
Q: partner-sourced deals contributing nicely. How we should think about the ones that will have the largest contribution in fiscal 2020?
A: Partners: vvvvvvvvvvvvvvvvvvvvvvvvv GD: interesting answer vvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
Large group of system integrators starting with the global system integrators, organizations like Deloitte, Accenture, PwC that are starting to really standardize not only their identity and security practices, but also their digital transformation practices around Okta. And they were some of the biggest sponsors of our sales kick-off a few weeks ago.
Technology partners, eg: Software-as-a-Service or technology infrastructure partners, organizations like Palo Alto Networks or some of these larger broader strategic partnerships we have with organizations like VMware, where they start to provide a lot of value in terms of not only introductions into new accounts, but also in that joint solutioning where you can really provide value to the customer.
Starting to see more and more partners that are integrating around the Okta service. So, whether it’s companies that are already out there that are gaining traction like Shape Security and BetterCloud that are looking to integrate with Okta or brand new organizations that are very early on their lifecycle who are actually building the Okta Identity Cloud right into the middle of their solutions.
Q: Services revenue normally up Q3->Q4. This quarter it was down, comments?
A: …continuing trend of Implementation partners of doing the services (so Okta doesn’t - less revenue, but more traction)
Q: Larger deals = function of initial customers large, or customers buying more up-front?
A: Both. Lots of software releases, so more use-cases we can help solve. So we’re getting bigger companies, and companies discovering more use-cases off-the-bat.
Q: How do you think about the upsell or the retention rate going forward now that you are landing with bigger deals initially?
A: DBNRR: 120%, expect that to continue.
Q: How did the internal versus external business perform relative to your initial expectations? [GD: Not sure I understand internal vs external? Ah, internal users versus external customers identity management]
A: Consistent. Different dynamics in those two markets (traditional enterprise versus customer identity). But I think that they are both doing very, very well and continuing to grow, which we are very excited about.
Q: Azuqua, talked previously about … integrations as being the key source of competitive differentiation versus Microsoft. In the past you’ve also drawn a line in the sand just in terms of being two to three years today ahead of that competition. How far ahead are you guys now? And how did that acquisition change that gap?
A: Not just integrations. It’s how you can orchestrate those around the business process. What Azuqua brings is the way you can kind of chain those connectors together.
eg: here are the steps that have to happen when a new employee gets hired, get all the data from workflow, do some simple processing on it, create a user over here with this type of data enhanced or do something specific in this other application where you want to copy files around or you want to change group permissions.
So it’s like how you chain those connectors together.
…it’s like while the competition is kind of trying to catch up on the connectors, we are changing the game by changing what it means to link those connectors together in a process.
Q: ScaleFT acquisition, where we are with that?
A: Their product was a product around securing access to servers. So if you have a bunch of servers in your data center or you are infrastructure-as-a-service cloud provider, you use ScaleFT to do the login and the security and the user management for administrators login to those servers.
And to do that, you have to be very good at Zero Trust security. So you have to be very good at detecting who the user is, who the – what the security posture of the user’s device because an administrator logging into servers is a sensitive thing.
- We can take that Zero Trust technology and broadly apply it across our entire portfolio, from single sign-on to multi-factor authentication and the other workforce products and even customer identity products.
Stay tuned for April announcements at Oktane.
Q: Azuqua. Investments required for scale, and timeframes?
A: …we’ll be able to integrate this product into our lifecycle management product relatively quickly. We are just – the deal has not actually closed yet.