Insights

Is Okta a Buy After Earnings?

Investors have some new reasons to be excited about Okta’s (NASDAQ: OKTA) business. The cloud services specialist this past week boosted its 2022 outlook for both sales and profits. Sure, Okta is still expecting to book an annual loss this year as it prioritizes growth and works to integrate its Auth0 acquisition. But the business is gaining share in an attractive market today.
Let’s take a closer look at fiscal 2023 first-quarter earnings and see what else company management had to say.
Image source: Getty Images.

Sales and profits
Okta joined other cloud services specialists, including Salesforce, in reporting solid demand at a time when enterprises are increasingly digitizing their work processes. Sales jumped 65% through late April, in fact, beating the 55% increase that most investors were expecting.
Looking deeper into the results reveals solid growth trends. Okta attracted new customers at a healthy clip, especially larger enterprises. Existing clients renewed their contracts at higher prices, too. “We delivered solid first-quarter results,” CEO Todd McKinnon said in a press release.
Okta didn’t end its recent streak of losses, though. Operating loss landed at $240 million, or 58% of revenue, compared with $91 million or 36% of revenue a year ago. Those earnings are being pressured by Okta’s focus on growth, its subscription-based selling model, and its integration of the Auth0 business.
Cash flow trends paint a clearer picture of Okta’s improving financial strength. Operating cash flow fell as a percentage of sales but remained positive at 5% of sales. “We have demonstrated the powerful leverage we have in our model,” CFO Brett Tighe said in a conference call with investors.
Backlog and outlook
Okta followed the lead of Palo Alto Networks and Salesforce in boosting its sales and profit outlook for 2022. That forecast is becoming more reliable, too, given that the company has a large pipeline of contracted but not yet billed sales. These obligations jumped nearly 60% in the past year and represent a significant portion of Okta’s annual revenue.
Management is still aiming to grow its business by at least 35% each year through fiscal 2026. The main financial metric executives are stressing in that period is free cash flow margin, which should approach 20% of sales by then. That figure is sitting at about 3% today and is expected to drop slightly this year before rebounding over the next several years.
The slumping share price since late 2021 suggests that some cybersecurity investors are choosing to wait for more concrete evidence of that financial rebound before buying the stock. Okta’s business is also exposed to general industry risks like slowing economic growth and rising interest rates.
But patient investors might find the stock attractive right now. Even after shares surged in response to this earnings report, Okta is still valued at 11 times annual sales, representing a nearly five-year low.
Demitri Kalogeropoulos has positions in Okta. The Motley Fool has positions in and recommends Okta, Palo Alto Networks, and Salesforce. The Motley Fool has a disclosure policy. –

Investors have some new reasons to be excited about Okta‘s (NASDAQ: OKTA) business. The cloud services specialist this past week boosted its 2022 outlook for both sales and profits. Sure, Okta is still expecting to book an annual loss this year as it prioritizes growth and works to integrate its Auth0 acquisition. But the business is gaining share in an attractive market today.

Let’s take a closer look at fiscal 2023 first-quarter earnings and see what else company management had to say.

Image source: Getty Images.

Sales and profits

Okta joined other cloud services specialists, including Salesforce, in reporting solid demand at a time when enterprises are increasingly digitizing their work processes. Sales jumped 65% through late April, in fact, beating the 55% increase that most investors were expecting.

Looking deeper into the results reveals solid growth trends. Okta attracted new customers at a healthy clip, especially larger enterprises. Existing clients renewed their contracts at higher prices, too. “We delivered solid first-quarter results,” CEO Todd McKinnon said in a press release.

Okta didn’t end its recent streak of losses, though. Operating loss landed at $240 million, or 58% of revenue, compared with $91 million or 36% of revenue a year ago. Those earnings are being pressured by Okta’s focus on growth, its subscription-based selling model, and its integration of the Auth0 business.

Cash flow trends paint a clearer picture of Okta’s improving financial strength. Operating cash flow fell as a percentage of sales but remained positive at 5% of sales. “We have demonstrated the powerful leverage we have in our model,” CFO Brett Tighe said in a conference call with investors.

Backlog and outlook

Okta followed the lead of Palo Alto Networks and Salesforce in boosting its sales and profit outlook for 2022. That forecast is becoming more reliable, too, given that the company has a large pipeline of contracted but not yet billed sales. These obligations jumped nearly 60% in the past year and represent a significant portion of Okta’s annual revenue.

Management is still aiming to grow its business by at least 35% each year through fiscal 2026. The main financial metric executives are stressing in that period is free cash flow margin, which should approach 20% of sales by then. That figure is sitting at about 3% today and is expected to drop slightly this year before rebounding over the next several years.

The slumping share price since late 2021 suggests that some cybersecurity investors are choosing to wait for more concrete evidence of that financial rebound before buying the stock. Okta’s business is also exposed to general industry risks like slowing economic growth and rising interest rates.

But patient investors might find the stock attractive right now. Even after shares surged in response to this earnings report, Okta is still valued at 11 times annual sales, representing a nearly five-year low.

Demitri Kalogeropoulos has positions in Okta. The Motley Fool has positions in and recommends Okta, Palo Alto Networks, and Salesforce. The Motley Fool has a disclosure policy.

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