I was going through my portfolio and comparing TTM revenue growth and EV/S and noticed that Okta stood as a major outlier when it came to revenue growth and EV/S. Specifically, Okta has a 28.x EV/S with a 51% TTM revenue growth. Compared to MDB at 21.x with 66.5%, SMAR at 20.x and 55.9%, ZS at 17.53 and 59.2%, etc.
We’ve discussed FCF as a future valuation metric where it makes sense to use that for a CRM or a TEAM, but for Okta, their FCF Margin was only 10% in Q1 and it went down to negative in Q2.
Bear had brought up EV/GP, so looking at that metric relative to our other favorites:
Ticker Mkt Cap TTM Gross Profit P/GP ratio ...and P/S (for comparison) TWLO 13.8b 542m 25.4 13.7 MDB 7.1b 238m 29.8 20.5 ESTC 5.5b 216m 25.4 17.9 ZS 6.1b 243m 25.1 20.2 AYX 6.6b 317m 20.9 18.9 OKTA 14.1b 371m **38.0 28.8**
Okta’s DBRR isn’t anything overly impressive too and if anything it’s trending downwards:
118, 119, 120, 120 (most recent first in TTM)
From a revenue growth rate: Q1 Q2 Q3 Q4 2019 59.81 56.97 57.79 49.86 2020 49.75 48.52
I’m forecasting $153.2 M in revenue for Q3 (they generally add about 10-15 M in revenue sequentially and I’m increasing services slightly) which would be a 45.11% growth in revenue which I think is moderate/aggressive since they themselves forecasted only 143 M (which I think was a sandbag at 37%)
Okta isn’t profitable either and if anything, their losses are increasing despite increasing revenues. However, their gross margin has increased sequentially it appears and is in the low 80s which is great.
Their glassdoor ratings are fine, they’ve held steady despite being public for quite some time which generally may have an impact on company morale. Todd McKinnon seems like a good CEO too.
I am incredibly bullish on the IAM industry but I don’t think it justifies this type of extreme valuation and the last thing I would want is another Zscaler type of meltdown from high 30+ multiple to high teens multiple. In some weird way, Okta has some similarities with Zscaler.
So what am I missing on Okta which makes them have such a higher valuation than some of our other stocks especially as a company that is growing at ~45-50% but is showing a slight slowdown in revenue growth?