Reflections on Okta’s reiteration of guida

[SaulR80683]

Reflections on Okta’s reiteration of guidance.

I had been very positive about Okta’s Auth0 acquisition and how it could turn the company around, but I was quite concerned when, at the end of the first week of April, in association with their Oktane conference, Okta reaffirmed their guidance for the quarter ending Apr 30 of revenue rising only 30% to 31%, and revenue for the fiscal year up only 29% to 30%.

I thought, “What the heck is going on, they are already a week into the third month of their quarter and they are still guiding so low? And emphasizing it by reiterating it! They must think the guidance is realistically in the range of what they are seeing! But how can that be with the Auth0 acquisition, and all those wonderful things they announced during Oktane?”

Then I realized that their guidance doesn’t include anything from the Auth0 acquisition, which doesn’t close until sometime in the July quarter.

And I realized that it will take a while for their new products to move the needle. Some are available today, some will become available in the July quarter.

And I also realize that they expect to beat guidance, probably by 5% to 7%.

However, I was left with a company that was unable to even raise guidance in association with their big Oktance event, presumably because even a 2% raise wouldn’t leave them with much of a beat. It’s thus company whose current business is now growing probably at about 35% to 38% organically (and probably with a growth rate that is still falling), which will probably be what they will report. That is sobering.

Granted, Auth0 will give them a nice boost, but it will take until eight months from now, until the October quarter results are reported in early December, to see what that boost looks like. And the new products will give them some boost, but we probably won’t see much of that until the October results are released in December also.

So, I dropped my position size from over 6% to 3%, as I needed cash for other things that are growing much faster, and am willing to wait with 3% to see what happens, as those shares are in taxable accounts, and I’d rather hold them if possible. I may be totally wrong about this, and completely overreacting, but that’s what I did. Please make your own decision and don’t just follow me.

Best,

Saul

[WillO2028]

Hi Saul,

Yes I definitely had similar thoughts about the reiteration of OKTA’s guidance, specifically regarding how late into this quarter they brought it out. I thought I was over reacting when I’d read about your continueing to add to your OKTA position in response to Stocknovices portfolio summary, when I miss remembered the fact that your response to Stocknovice was actually five days prior to the Crowdstrike announcement.

I haven’t decided if my 4.8% position reflects my current confidence level or not, given the likelihood of OKTA further decelerating their revenue growth to Perhaps 38% or so.

Why would Sales of OKTA services be slowing relative to Crowdstrike or Zscaler for example?

Back in December Muji did write at HHHypergrowth.com about Cloudflare moving into OKTA’s lane. These are my notes from that:
Cloudflare moving into OKTAs lane
One of the bigger enhancements is that Cloudflare’s Access will not only protect internal services (like Zscaler’s ZPA) but also external SaaS providers, acting as a Zero Trust interface over ANY of the SaaS tools a company utilizes - going way beyond the Secure Web Gateway (SWG, a kind of firewall over SaaS tool usage) features of its sibling Gateway product. This is potent – while still using partners for establishing identity, Cloudflare Access will be taking over all access rights and traffic restrictions from there.

Beyond that, Gateway SWG is getting WARP speed with Argo Smart Routing (aka it will take the fastest Internet paths and circumvent networking issues, with their “Waze for the Internet” service) as well as the new Magic Firewall, plus will now have browser isolation that they acquired from S2 Systems – which means the edge network is becoming your browser, and your device is seeing only the safe (malware free) “final copy”. [Zscaler has a similar service, added from their Appsulate acquisition.] An Intrusion Detection System (IDS) is also coming that will proactively scan the traffic usage of your enterprise’s use of the edge network when using Cloudflare One.<i/i>

And on his Twitter feed:
muji @ hhhypergrowth

@hhhypergrowth
·Oct 13, 2020
Today’s new $NET One feature is a bigger deal than I thought it’d be from yesterday’s teaser. Bold moves that are understated from the headline. Cloudflare just took a big step into $OKTA ‘s lane. /1

Cloudflare
@Cloudflare
Cloudflare Access: now for SaaS apps, too. https://cfl.re/3dqWHgO #ZeroTrustWeek
Matthew Prince

@eastdakota
And imagine if you could set up granular access controls within an application. Only these employees can access this particular record in Salesforce, even if Salesforce itself doesn’t provide that level of granularity. #staytuned
11:11 AM · Oct 13, 2020

It is possible the winds are blowing a bit against the fruition of The OKTA Identity Cloud

Security in general does not have any direct ROI. We all know of examples where Identity Access Management issues were the cause of past breaches. It makes sense that security is Identity Centric. But, I’m wondering if Identity Access Management is able to demonstrate the hard numbers, in security breaches thwarted in real time that Crowdstrike and Zscaler are able demonstrate for example, in order to concretely justify the expense to those paying for it.

So I do see reason for doubting the timing of building a larger position at this time, for sure.

Best,

Jason