1 Big Question in Okta’s Results Update

Okta (NASDAQ:OKTA) investors have big questions ahead of the company’s earnings report next week. The identity management software giant likely benefited from strong demand in the cybersecurity space as more companies moved online in early 2022. Still, concerns are growing over the ability of Okta to capitalize on its growing business footprint.

Let’s dive straight into the report which is expected to arrive the afternoon of June 2.

Image source: Getty Images.

Sales trends

Okta’s latest earnings announcement contained plenty of good news on the growth front. Sales soared 63% to $383 million and billings nearly doubled. Sales expansion was strong, even after removing the impact of the company’s recent acquisition of Auth0. Revenue increased by 39% on this basis.

Signs of solid commitment weren’t hard to come by either. Okta gained market share and its average contract size jumped 24%. One of management‘s main growth initiatives is to convince existing customers to subscribe to more of its services over time, and this approach is working.

Investors are looking for strong and continued sales gains in the first quarter of the fiscal year as revenues increase by around 55%. Palo Alto Networks reported strong demand for its cybersecurity services and hardware last week, adding to Okta’s optimistic near-term outlook.

The profit challenge

The main concern is Okta’s profitability. While Palo Alto Networks is benefiting from increased margins, Okta’s is down as the company strives to integrate the Auth0 business. Last year, losses reached $848 million, up from $266 million a year earlier.

Extensive red ink like this wasn’t as much of a concern on Wall Street in earlier phases of the pandemic. However, with rising interest rates and a potential recession on the horizon, that attitude has changed.

Shareholders will want to see signs that Okta can begin to return the company to profitability. Yet no-GAAP losses are expected to land at around $50 million in the first quarter, management said in early March.

A brighter perspective

Palo Alto Networks raised its sales outlook last week, and it’s possible Okta will follow with its own upgrade. As the report nears, CEO Todd McKinnon and his team expect revenue to grow about 38% in 2022 and operating losses to improve to $180 million.

The stock’s slump over the past few months means investors have little expectation of a huge uptick in revenue. They are even less certain that Okta can quickly cut its losses following its costly acquisition of Auth0.

The purchase opened up a much larger addressable market for Okta, but the stock is unlikely to rebound strongly until management can show positive earnings effects from the company’s rapid expansion. cybersecurity service wallet.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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