Okta stock sinks as CEO says ‘short-term challenges’ led to higher rate of employee departures


The shares of Okta Inc. tumbled in extended trading on Wednesday after executives disclosed that the software company was facing problems stemming from the integration of its $6.5 billion acquisition of Auth0.

Executives raised their full-year profit outlook again on Wednesday, but kept their full-year revenue target the same. Todd McKinnon, CEO and co-founder of Okta, told MarketWatch in an interview after the results were released that “there are some near-term challenges.”

“There are a lot of things that are going very well, but the results have been mixed,” he said.

One of the challenges has been the struggle to combine Okta’s sales force with sales representatives acquired in the May 2021 acquisition of the Auth0 (pronounced “Auth Zero”) identity platform, which focuses more on direct-to-user sales than enterprise. focus of Okta.

These challenges appear to have accelerated the revolving door at Okta, which makes software that helps authorized employees access applications on their corporate networks. McKinnon said on a conference call that attrition rates are currently higher than usual at about 20%, compared to a usual 15%, and that if he had to redo the integration, he would be more moderate and less aggressive in growth.

On the call, McKinnon emphasized to investors that the various sales organizations have only been integrated for about six months and that these challenges have been factored into the outlook.

“To help shape this framework, over half of our outlook headwind is related to our sales integration challenges,” Brett Tighe, Okta’s chief financial officer, said on the call. “A secondary part of the decline is related to increased attrition, which led to lower-than-expected capacity growth as we move through the year.”

Tighe also acknowledged that the problems could affect longer-term forecasts.

“Given our short-term outlook combined with the uncertainties of the evolving macroeconomic environment, we are reassessing our FY2026 targets at this time,” Tighe said.

Okta shares fell nearly 12% after the results were released on Wednesday, after closing up 0.3% at $91.40. The stock is down 59.2% so far this year, as the S&P 500 SPX,
has fallen 16.4%.

Okta reported a second-quarter loss of $210.5 million, or $1.34 per share, compared with a loss of $276.7 million, or $1.83 per share, in the year-ago period. After adjusting for stock-based compensation expense and other items, the loss was 10 cents per share, compared with a loss of 11 cents per share in the year-ago period. Revenue rose to $451.8 million from $315.5 million in the prior quarter.

Analysts had forecast an adjusted loss of 31 cents per share on revenue of $430.7 million, based on the company’s forecast of a loss of 31 cents to 32 cents per share on revenue of between $428 million and $430 million.

Okta executives kept their revenue forecast for the year at $1.81 billion to $1.82 billion, while lowering their forecast for adjusted loss to a range of 70 cents to 73 cents per share, compared with previously forecast annual adjusted loss of $1.11 to $1.14 per share. share. Analysts polled by FactSet had expected an adjusted loss of $1.11 per share on revenue of $1.82 billion.

For the third quarter, Okta executives guided for an adjusted net loss of 24 to 25 cents per share on sales of $463 million to $465 million. Analysts on average had expected an adjusted loss of 28 cents per share on sales of $464 million, according to FactSet.

In the interview Wednesday, Okta leaders also discussed an ongoing hack dubbed “Oktapus” in which hackers used a Twilio Inc. breach. TWLO,
to intercept Okta one-time passwords used for multi-factor authentication. This follows an unrelated hack that Okta found in January that the company took until March to deem “non-essential.”

“The thing is, this time there’s no delay,” McKinnon told MarketWatch. “They were using Okta’s login page as a phishing target. We’re the industry leader, so people will try to fish for the leader.”

“What made this seem unique is that it was more effective than usual,” McKinnon said. “The short answer is that it worked.”

Leave a Reply

Your email address will not be published. Required fields are marked *