However, the stock fell hard as the company noted that business growth was affected by unexpected problems with the integration of identity software company Auth0, which Okta acquired in 2021. In premarket trading on Thursday, the stock fell 18% to 74.94 dollars.
For its fiscal second quarter ended July 31, Okta (ticker: OKTA ) posted revenue of $452 million, up 43% from a year ago and ahead of the company’s target range of $428 million to 430 million dollars. On an adjusted basis, the company lost $16 million, or 10 cents per share, well below the loss of 31 to 32 cents per share it had forecast. According to generally accepted accounting practices, Okta lost $210 million, or $1.34 per share.
Okta ended the quarter with $2.79 billion in outstanding performance obligations, up 25% from a year ago. Current RPO, a measure of work expected to be recognized over the next 12 months, was $1.5 billion, up 36%.
For the October quarter, Okta expects revenue of $463 million to $465 million, up between 32% and 33%, with an adjusted loss of 24 to 25 cents per share. The Wall Street consensus was for revenue of $464 million and a loss of 28 cents per share. The issue for the stock is obviously the outlook for the current RPO: Okta expects the figure to reach $1.54 billion or $1.55 billion, up 30% to 31%, with a significant slowdown from Q3 of July.
For the January 2023 fiscal year, Okta now sees revenue of $1.812 billion to $1.820 billion, with a non-GAAP loss of 70 to 73 cents per share. Its previous guidance had called for revenue of $1.805 billion to $1.815 billion and a loss of $1.11 to $1.14 per share.
CEO Todd McKinnon said in an interview with Barron’s that it was “somewhat of a mixed quarter” for the company, with strong growth in deals worth $1 million or more, and strong demand from the public sector in general and the US government in particular. However, he also said that Okta is facing some issues with the Auth0 integration, particularly in meshing its sales team with Okta’s core sales staff.
“This integration has turned out to be more difficult than we thought,” he said. McKinnon noted that while the deal closed 18 months ago, the sales teams were integrated more recently, in early 2022. “The biggest issue was that it wasn’t clear enough how Okta’s sales people were supposed to sell Auth0,” he said. . Okta is working to simplify the process.
A second problem, he said, is that there has been more than expected attrition in Okta’s sales force, so there have been a large number of new hires who need to be trained on the company’s products.
McKinnon says the sales completion issue shows up not only in the cRPO number, but also in the relatively modest boost to full-year guidance given the strong quarter just reported.
As for the impact on the business of the softer macroeconomic environment, McKinnon said the company has seen “a little lengthening of the sales cycle,” but nothing significant.
“The biggest thing for us in this integration issue.”
Write to Eric J. Savitz at eric.savitz@barrons.com
