OKTA reported their Q1 2021 results on May 28. They had previously warned about some headwinds so I wasn’t expecting a blowout quarter. But you also had many other companies confirming that the digital transformation and cloud adoption is greatly accelerating. MSFT CEO said they saw 2 years worth of adoption in a few years. Even OKTA said that they think that digital transformation was being accelerated by 5 years. So why isn’t OKTA seeing a massive acceleration in revenue growth? I think it’s a good question to ponder.
What I think could be happening is that prospective customers are regrouping to plan their digital transformations which may delay adoption of OKTA’s services. Some customers, like FedEx, are not waiting but perhaps many are. In contrast, I don’t think that customers had/have the luxury of waiting to adopt CRWD or DDOG. What these companies (CRWD and DDOG) offer is needed ASAP so the customers adopted immediately. This is why DDOG had a blowout quarter. It is why I think CRWD is about to report a blowout quarter (yes, I have made some very big bets on CRWD’s upcoming result). Anyway, back to OKTA: we should expect to see revenue growth acceleration soon. If we don’t see this, what gives? If we have 5 years worth of acceleration in digital transformation and OKTA doesn’t realize those benefits then something must be wrong. As I wrote above, I think there’s just a lag in the decision making so I’m holding my remaining OKTA position for now. [Side note: I think we are probably seeing a similar phenomenon occurring with AYX customer adoption: more thought and planning is required to adopt then simply needing a cybersecurity solution yesterday]. We will find out in a few quarters. OKTA guided low for their Q2 so I’m not expecting to see revenue accelerate materially next quarter, but perhaps in the following quarter (Q3) or in Q4. I will probably be patient until then.
So, yes, I reduced my OKTA position by 15% (about a 14% allocation down to 12%) prior to their earnings. OKTA is a slower grower so I reallocated some of the funds. What I do like about OKTA is their stickiness and their complete dominance in their market [note: DDOG and CRWD are growing like gangbusters, but they could be more apt to being disrupted].
digital transformation. Not easy ,most companies will fail on their first attempt, many will never get it right
examples of success and failure
GE created a new digital business unit but was focused on size instead of quality
Ford started a new digital service that was separate from the rest of the company instead of integrating digital solutions
Procter & Gamble didn’t consider the competition or impending economic crash
These missteps can spell doom for digital transformation, but all three companies managed to try again with better success
It’s important to note that although these companies failed on their initial digital transformation efforts, they were able to make adjustments to succeed in the future.
The GE failure was a very expensive one
Several examples of success- McKesson, Anheuser- Busch, Barings and others
investment in transformational technologies continues apace, growing at a 17.5 percent compound annual growth rate to top $7.4 trillion between 2020 and 2023, according to IDC research. 40 percent of respondents for Gartner’s CIO Agenda 2020 survey have reached scale for their digital endeavors, up from 33 percent in 2019 and 17 percent from 2018, .
So if digital transformation is growing at 17.5% we have to pick those providers taking market share to get 40+% growth
I believe in OKTA. I think they’re continuing to innovate and add more applications through which people can sign-on without having to continually put in their passwords. I recently mentioned that I no longer need to use my RSA token to remote log-in to my work computer and use OKTA login instead. This is huge in my opinion. RSA tokens are such old school technology. I never thought they would go away. I don’t clearly understand how OKTA gets paid whether per user/application, etc but I’m sure this will convince more companies to onboard with them.
Anecdotally I work for a medium sized luxury hotel group and we have just started using Okta.
Not being in the It department I do not know if this was something that had been planned ahead of Covid or something brought about by the need to have better WFH conditions for sales staff and the like.
Just to show that there are a few new customers out there…
Chris, I think you answered your own question. Services that are usage-based or that see bottoms-up user adoption like Fastly, Zoom, and even Crowdstriek are seeing adoption accelerate from COVID-19.
If your product is sold into an IT department like Okta. It will slow down a bit as the sales process requires direct interaction with an IT director. And there are limits to doing that from COVID-19.