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.