Okta CEO tells MarketWatch that small and midsize businesses ‘are not buying as much as we expected,’ but an ability to sell more products to existing customers is helping the software company
Okta Inc. shares rallied in the extended session Wednesday after the identity-management software company topped estimates by a wide margin, and executives predicted adjusted earnings that were more than double what Wall Street had expected.
Okta’s stock OKTA, +0.21% rallied more than 14% in after-hours trades, following a 0.2% rise to close the regular session at $71.44.
In an exclusive interview with MarketWatch ahead of the company’s conference call, Okta Chief Executive Todd McKinnon, a company co-founder, said the outlook was based on the company’s “mission critical” security products and the building of its own ecosystem.
Small and midsize businesses “are not buying as much as we expected,” McKinnon told MarketWatch, attributing that largely to macroeconomic factors. McKinnon suggested he is personally familiar with managing through the economic climate, having had to let go 5% of his own workforce in a reshuffling of the company’s own investments.
How Okta is now able to issue an upbeat outlook has everything to do with customer retention, he said.
For the first quarter, the forecast calls for adjusted earnings of 11 or 12 cents a share on revenue of $509 million to $511 million, and full-year earnings of 74 to 79 cents a share on revenue of $2.16 billion to $2.17 billion. Analysts surveyed by FactSet had forecast a break-even top line on a per-share basis for the first quarter on revenue of $498.5 million, and 36 cents a share on revenue of $2.15 billion for the year.
“Our business is tilted to upsells and cross-sells vs. new business, and it kind of makes sense when people are scrutinizing more things and double-checking every investment on the margin, it’s easier to go with a vendor you already have a relationship with,” McKinnon told MarketWatch.
On the call with analysts, Okta executives stressed that customer-retention rates have remained in the mid-90% for quite a while and that the major headwind for acquiring new customers their reluctance to pull the trigger on a deal amid economic uncertainty.
“I can see how customers would be a little bit more hesitant to engage in new partnerships at this time just because there is an unknown macro situation out there or the fear of the unknown, if you will,” McKinnon said on the conference call. “So, we do believe it is a little bit more on the new-business side, but we’re obviously actively working to try to sell both new business and upsells.”
Okta reported a fourth-quarter loss of $153 million, or 95 cents a share, compared with a loss of $241 million, or $1.56 a share, in the year-earlier period. After adjusting for stock-based compensation expenses and other items, the company reported earnings of 30 cents a share, compared with 18 cents a share a year before. Revenue rose to $510 million from $383 million in the year-ago quarter.
Analysts had forecast earnings of 9 cents a share on revenue of $489.9 million. That was based on the company’s forecast 9 to 10 cents a share on sales of $488 million to $490 million. The Street had expected a loss.
Tighe had revealed a full forecast for fiscal 2024 a quarter ago, calling for an adjusted profit on revenue of $2.13 billion to $2.15 billion.
From the archives (November 2022): Okta CEO promises profit for all of next year: ‘The problem was never that we didn’t have talented sales people’
At the end of January, one analyst upgraded Okta to buy, reasoning that it has “generally happy customers” and that this would come into play as cloud-software vendors face budget-constrained customers.