https://seekingalpha.com/news/3549197-oktaplus-3-after-beats…
Revenue beat, but increasing losses.
46% Subscription growth yoy
R&D expenses grew 44%
Call at 5 today
6 Likes
I like the report but I struggle with companies that grow so fast and become more loss making.
Also their share count is increasing at double the rate of AYX, TTD, ZS, and DOCU. That in and of itself isn’t so bad but when you are growing at a much lower rate than AYX, not profitable like TTD, and have much less revenue than DOCU, I struggle with it.
Valuations (sales multiples) at mid-point of forward guidance:
TTD: 15.3
AYX: 17.9
ZS: 16.5
DOCU: 16.8
ROKU: 8.1
OKTA: 19.9
Presently no position in OKTA.
Rob
3 Likes
ROKU: 8.1
This is an OKTA thread, but I object to using ROKU’s full revenue when looking at their valuation compared to others. I believe using only their platform revenue is the right way to look at ROKU.
Doing so would put ROKU far higher than 8.1.
I believe you have to subtract their hardware sales out of revenue as hardware sales are essentially pass through sales. All I’m saying here is don’t be confused by ROKU’s valuation.
I do own a bit of ROKU to be clear.
A.J.
8 Likes
Ratio is higher if hardware sales are discounted. Any idea how much higher?
Roku sells Roku branded devices.
A wide variety of them that they design and distribute. They come in a box that says ROKU on it.
Those are real legal sales that must be accounted for. I believe it is inappropriate to eliminate that from the balance sheet to land at a made up valuation.
The company doesn’t do that and the SEC would never let them. If you want to for your own supplemental reasons then more power to you. But it’s not a real metric for company performance.
Darth
5 Likes
The reason some remove device sales from the Roku sales to get p/s ratios is this whole p/s ratio metric is being used now to compare SaaS companies that have 80% or higher GP.
So to compare Okta’s p/s ratio with Roku, you may as well be adding ford into the mix. They all have drastically different profit margins so shouldn’t be compared based on their sales.
Roku’s platform margins may go to the mid-high fifties over time so even they are not comparable to a SaaS company.
1 Like
I like the report but I struggle with companies that grow so fast and become more loss making.
What figures are you using? It appears to me losses are decreasing, not increasing. And FCF now appears to be solidly positive.
Non-GAAP Operating Income (16-19% margin by 2024) % Revenues
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 -$17.01 -$15.09 -$14.43 -$10.82 -$57.36 2017 -51.5% -40.2% -33.8% -22.3% -35.4%
2018 -$18.53 -$14.21 -$19.35 -$9.15 -$61.23 2018 -35.4% -23.6% -28.9% -11.9% -23.9%
2019 -$10.84 -$19.20 -$6.49 -$4.93 -$41.50 2019 -13.0% -20.3% -6.1% -4.3% -10.4%
2020 -$24.89 -$9.91 -$8.14 -$5.60 -$48.53 2020 -19.9% -7.1% -5.3% -3.3% -8.3%
Non-GAAP Net Income % Revenues
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 -$17.06 $15.13 -$14.48 -$11.08 -$27.49 2017 40.3% -33.9% -22.8% -17.0%
2018 -$18.80 -$14.05 -$17.90 -$8.48 -$59.23 2018 -35.9% -23.3% -26.8% -11.0% -23.1%
2019 -$9.45 -$16.42 -$3.92 -$4.35 -$34.14 2019 -11.3% -17.4% -3.7% -3.8% -8.6%
2020 -$21.36 -$5.51 -$8.06 -$1.74 -$36.67 2020 -17.1% -3.9% -5.3% -1.0% -6.3%
Non-GAAP Free Cash Flow (20-25% by 2024) % Revenues
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 -$17.19 -$15.03 -$11.81 -$9.81 -$53.84 2017 -52.0% -40.0% -27.6% -20.2% -33.3%
2018 -$13.34 -$10.48 -$11.21 -$2.18 -$37.22 2018 -25.5% -17.4% -16.8% -2.8% -14.5%
2019 -$1.56 -$11.33 $1.37 $4.76 -$6.75 2019 -1.9% -12.0% 1.3% 4.1% -1.7%
2020 $13.20 -$4.30 $9.25 $18.14 $36.27 2020 10.5% -3.1% 6.0% 10.8% 6.2%
41 Likes
It doesn’t look as though the non GAAP income numbers are improving overall. At best I’d say the trend is indeterminate.
1 Like
They were touting they’re positive FCF but the improvement in FCF minus SBC was even greater than FCF alone. This is a really good sign. The sum of revenue growth and FCF minus SBC was 34%, up from 28% I think last quarter. On a TTM basis this metric has been 31% for three quarters. It has been in the high thirties and I think about 41% back when revenue growth was much higher. I feel very comfortable with OKTA if they can put up this combo of rev growth and true FCF along with their current RPO and their indespensible product.
3 Likes
It doesn’t look as though the Okta non GAAP income numbers are improving overall. At best I’d say the trend is indeterminate.
Hi Draj,
Well, net loss dropped from 8% of revenue to 6% of revenue, which I’ll admit isn’t much, but how about these real cash in the bank numbers:
Operating cash flow was $56 million, or 9.5% of revenue, up from $15 million, or 3.8% of revenue.
Free cash flow was $36 million, or 6.2% of revenue, up from a LOSS of $7 million, or 1.7% of revenue.
Saul
24 Likes
Re: Okta cash flow
Hi Saul,
I saw the cash flow numbers reported. It is not obvious me how to reconcile the facts. If a company isn’t growing earnings I’m inclined to be concerned . I am long OKTA (7%) because they have a compelling story and plan. Still I would prefer to see some earnings.
.
I saw the cash flow numbers reported. It is not obvious me how to reconcile the facts. If a company isn’t growing earnings I’m inclined to be concerned . I am long OKTA (7%) because they have a compelling story and plan. Still I would prefer to see some earnings. – draj
I love earnings too. Unfortunately… earnings are increasingly obtuse and subject to manipulation (partially “thanks” to the new accounting standard regarding recognition of revenue).
The thing is… it’s REALLY hard to fake cash and accounting standards haven’t screwed that up yet. With that in mind, I find the previously shared cash flow info (shown below) to be quite impressive.
Non-GAAP Free Cash Flow (20-25% by 2024) % Revenues
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 -$17.19 -$15.03 -$11.81 -$9.81 -$53.84 2017 -52.0% -40.0% -27.6% -20.2% -33.3%
2018 -$13.34 -$10.48 -$11.21 -$2.18 -$37.22 2018 -25.5% -17.4% -16.8% -2.8% -14.5%
2019 -$1.56 -$11.33 $1.37 $4.76 -$6.75 2019 -1.9% -12.0% 1.3% 4.1% -1.7%
2020 $13.20 -$4.30 $9.25 $18.14 $36.27 2020 10.5% -3.1% 6.0% 10.8% 6.2%
VERY nice job flipping into positive territory at a convincing rate. OKTA was teetering on my “should I sell list” and this earned them a reprieve from me taking them out back and shooting them. 
Sorta like “Good night Wesley. Sleep well. I’ll likely kill you in the morning.” Only they’re now good for at least another quarter. AND… as we all know, Wesley was brought into the business and did just fine. Maybe OKTA will do just fine as well. 
Rob
Rule Breaker / Market Pass / Supernova Starshot Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
15 Likes
I saw Okta’s cash flow numbers reported. It is not obvious me how to reconcile the facts. If a company isn’t growing earnings I’m inclined to be concerned .
Hi Draj
I think that the explanation is in the RPO (Remaining Performance Obligations). They have $1,210 million in RPO. That’s more than double again the $586 million that they were able to recognize in revenue last year. Assuming some part of that is paid in advance but not recognized (deferred revenue), that accounts for the Free Cash Flow being positive.
Saul
10 Likes
The thing is… it’s REALLY hard to fake cash and accounting standards haven’t screwed that up yet. With that in mind, I find the previously shared cash flow info (shown below) to be quite impressive.
Thank you TMFRob.
This expanded perspective clarifies the picture for me. Evidently I require further insight regarding the composition of the net earnings figure, or net earnings generally. But the larger story looks quite promising.
That’s more than double again the $586 million that they were able to recognize in revenue last year. Assuming some part of that is paid in advance but not recognized (deferred revenue), that accounts for the Free Cash Flow being positive.
Thank you Saul for providing what appears to be the missing piece. OKTA did report a strong increase in deferred revenue.
2 Likes
I think that the explanation is in the RPO (Remaining Performance Obligations). They have $1,210 million in RPO. That’s more than double again the $586 million that they were able to recognize in revenue last year. Assuming some part of that is paid in advance but not recognized (deferred revenue), that accounts for the Free Cash Flow being positive.
Saul
Saul, you seem to make these analyses so effortlessly. Could you tell me where you learned what you know about accounting?
Thanks.
Jeb
2 Likes
I think that the explanation is in the RPO (Remaining Performance Obligations). They have $1,210 million in RPO. That’s more than double again the $586 million that they were able to recognize in revenue last year. Assuming some part of that is paid in advance but not recognized (deferred revenue), that accounts for the Free Cash Flow being positive.
Saul
Saul, you seem to make these analyses so effortlessly. Could you tell me where you learned what you know about accounting? Thanks.
Jeb
Hi Jeb, I don’t know anything about accounting! … My secret was that I read the earnings call transcript! 
13 Likes