OKTA

Investment Analysis Clubs Saul’s Investing Discussions
1

Okta releases Q2 earnings: https://investor.okta.com/news-releases/news-release-details…

Looks like a good quarter to me. The highlights:

  • Revenue growing 57% yoy (beat on revenue)
  • Subscription revenue up 59% yoy
  • Beat estimates by $0.04 with an EPS of $0.15
  • Operating cash flow improved 480 basis points yoy, free cash flow margin up 540 basis points yoy
  • 73.3% Gross margin
  • This quote fires me up a bit “Growth in customers with over $100,000 annual recurring revenue accelerated to 55% year-over-year in Q2, which is a testament to the increasing strategic need for an identity solution as organizations move to the cloud. This need is pervasive and imperative, and I believe we are in the early stages of capitalizing on this high growth opportunity.”

On first pass looks like a really good quarter. Will have to go more in depth later, if I’m missing something let me know!

WM33
Long OKTA

8 Likes
2

Up high after market, like 17% up. I’ll be adding to my small position tomorrow.

2 Likes
3

To put it in perspective… what Okta builds would take a an enterprise keeping a 10 man developer team on staff…or more… to build the capability and maintain it. It’s a no-brainer type of thing to bring in.

4 Likes
4

To put it in perspective… what Okta builds would take a an enterprise keeping a 10 man developer team on staff…or more… to build the capability and maintain it. It’s a no-brainer type of thing to bring in.

… and to extend the thought even further: When the inevitable market downturn comes, Okta (presumably) will be far down the lines of things management scraps when it comes time to tighten the belt. Not necessarily recession-proof, but better than most.

4 Likes
5

Good point.

Actually, there is a good way to think about a lot of these companies… in many cases, you aren’t buying a ‘system’, you are buying a core component of many systems, or your enterprise.

Sun was really visionary. With Java, when they had the compnent store, and the idea you would just ‘buy’ this bit and that bit, and assemble the app.

This is the 2.0 version of that… I always try to explain that software isn’t just software, its a human-software complex. You have both human (and machine) users, and then the humans who build, maintain, know and extend it. You can’t have working software with out a working team; without the team, software ‘entropies’ - because systems are so dynamic now that need and function changes, because for software (unlike for building planes and rockets), physics and laws by which it has to work change all the time – no threats, protocols, processors, networks, use cases, loads, etc.

So the missing part was that service bit and revenue … you don’t just buy the software once, you are putting a living, breathing maintained entity into your system. And you have to choose decisively, because you are going to likely live with it for awhile.

In terms of change and dropping tools, Architects (whose job is fundamentally selecting what to tear down and rebuild better), will likely be in maintenance mode – they may negotiate price or remove costly or edge cases…but core parts of their business will stay in place…

Other techs/companies that fit this model:
– Elastic Search
– Instio (if they ever go public in some form)
– Kubernetes/docker/mesos
– zscalar
– pstg, ntnx (a wierd breed of should have been historically hardware magically pulled that off)
– nginx
– kibana
– Spark
– Twilio
– App dynamics, New Relic

I should build out a reference architecture and fill in all the spaces with the companies making leading offerings.

These guys all specialize in parts of building enterprises.

20 Likes
6

Not necessarily recession-proof, but better than most.

Maybe. I assume in a recession the “hyper” part of these growth companies will come to an end. Old customers may stay but potential customer will go into flat expense mode. And who knows what will happen to a stock that has “hyper” baked in. Perhaps we’ll all be in different stocks by then.

HN
Long OKTA

3 Likes
7

I’ve not been keeping up to speed on this board for several months – life has gotten in the way – but I was going back through old posts, and came across this one. I know there must be plenty more like it, but I wanted to use it to additionally illustrate the power of high-growth companies. When the numbers get big enough, a hit off the top isn’t nearly as hard to take as a hit off a much lower number.

This discussion took place right after an OKTA earnings report. The stock peaked at $72.49 post-report (closing prices) on 9/13/2018. “It’s too expensive,” people certainly said.

Sure enough, it sold off down to below $42 intraday just more than two months later. Imagine the folks that sold at the bottom! It only proceeded to more than triple over the following eight months (closing 7/26/2019 at $140.53).

“When the recession comes, it’ll take a huge dip,” they said. Indeed, OKTA traded sideways – or more accurately, a big drop followed by a steady grind back to near-highs just as the overall market tanked.

From peak-to-trough – using closing prices – OKTA lost 31% ($139.50 on 2/19/2020 to $96.08 on 3/16/2020) during the COVID crash. Yet it was still UP more than 32% from its “peak euphoria” when we were discussing this hyper-growth stock.

Since the COVID crash, it’s now more than doubled – to nearly a triple of what it was back when folks said it was “too expensive.”

Of course, OKTA isn’t even the best example of this buy-and-hold-so-long-as-the-thesis-remains-good style of SaaS/hyper-growth strategy. But I’ll certainly take it over the 6-7% the S&P’s provided over the same time frame.

3 Likes