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Okta, Inc. (NASDAQ:OKTA): Securing the Future of Identity Management
Published on September 24, 2024 | Ticker: OKTA

Okta, Inc. (NASDAQ:OKTA) is the leading independent identity partner, providing cloud-based identity and access management solutions to businesses and organizations worldwide. The company's Workforce Identity Cloud and Customer Identity Cloud, powered by Auth0, enable customers to securely connect the right people to the right technologies and services at the right time.

Financials

Okta reported impressive financial results for the fiscal year 2024, with annual revenue reaching $2,263 million and annual net income of -$355 million. The company's annual operating cash flow stood at $512 million, while its annual free cash flow was $488 million. These figures demonstrate Okta's ability to generate substantial cash flow, despite the net loss, which can be attributed to the company's continued investments in growth and innovation.

In the first quarter of fiscal 2025, Okta reported revenue of $617 million, up 19% year-over-year. Subscription revenue, which accounts for the majority of the company's total revenue, grew 20% to $603 million. The company's gross margin improved to 76%, up from 73% in the same period last year, driven by increased efficiency in its subscription business.

Expanding Customer Base and Increasing Adoption

Okta's customer base continues to grow, with the total number of customers reaching 19,100 as of the end of the first quarter of fiscal 2025, up 6% year-over-year. The company's focus on large enterprise customers is paying off, as the number of customers with annual contract value (ACV) above $100,000 increased by 12% to 4,550.

Okta's Dollar-Based Net Retention Rate, a key metric that measures the company's ability to retain and expand business with existing customers, remained strong at 111% as of the end of the first quarter. This indicates that Okta's customers are continuing to increase their usage of the company's products and services over time.

Driving Innovation and Enhancing Security

Okta is committed to driving innovation and enhancing the security of its platform. The company recently launched several new products and features, including Identity Security Posture Management and Identity Threat Protection with Okta AI. These offerings are designed to help customers proactively identify and address security vulnerabilities, as well as detect and respond to identity-based threats.

Okta's Secure Identity Commitment, announced earlier this year, is the company's long-term plan to lead the industry in the fight against identity attacks. This initiative aims to harden Okta's internal systems and further strengthen its products and services, while also championing customer best practices to enable highly protected environments.

Navigating Macroeconomic Challenges and the Impact of the Security Incident

The company has acknowledged the ongoing macroeconomic challenges, including the impact of the inflation and interest rate environment, which have affected the mix of new business versus upsells with existing customers. Okta has taken a prudent approach to its guidance, incorporating some conservatism as it continues to monitor the potential impact of the security incident that occurred in October 2023.

Despite these headwinds, Okta remains confident in its ability to drive profitable growth in the long term. The company has implemented cost-saving initiatives that have resulted in improved operating profitability and record free cash flow, with a free cash flow margin of 35% in the first quarter of fiscal 2025.

Outlook

For the full fiscal year 2025, Okta expects total revenue to grow 12% to approximately $2.53 billion. The company also raised its guidance for non-GAAP operating margin to 19-20% and free cash flow margin to approximately 22%.

Okta's three top priorities for fiscal 2025 are: 1) Securing Okta and its products, 2) Reigniting growth, and 3) Scaling the business to become a $5 billion and then $10 billion-plus company. The company's focus on security, innovation, and strategic partnerships positions it well to navigate the evolving market landscape and capitalize on the growing demand for identity management solutions.

Geographical and Segmental Performance

Okta's revenue is primarily generated in the United States, which accounted for 79% of total revenue in fiscal 2024. The company's international revenue, which includes the Americas, Asia-Pacific, and Europe, represented 21% of total revenue.

In terms of business segments, Okta's Workforce Identity Cloud and Customer Identity Cloud contributed 60% and 40% of total revenue, respectively, in fiscal 2024. The Workforce Identity Cloud segment grew 17% year-over-year, while the Customer Identity Cloud segment grew 21% during the same period.

Liquidity

Okta's balance sheet remains strong, with a net cash position of approximately $1.2 billion as of the end of the first quarter of fiscal 2025. The company's free cash flow margin of 35% in the first quarter demonstrates its ability to generate substantial cash flow, which can be used to fund future growth initiatives, strategic acquisitions, and other corporate purposes.

Okta has also issued convertible senior notes, including the 2025 Notes and the 2026 Notes, which provide the company with additional financial flexibility and resources to support its long-term growth strategy.

Risks and Challenges

While Okta has demonstrated impressive financial and operational performance, the company faces several risks and challenges that investors should be aware of. These include the ongoing macroeconomic uncertainty, the potential impact of the security incident, competition from larger technology companies, and the need to continuously innovate and adapt to changing market dynamics.

Okta's ability to successfully navigate these challenges and execute on its strategic priorities will be crucial in determining the company's long-term success and its position as the leading independent identity partner.

Conclusion

Okta's robust financial performance, expanding customer base, and commitment to innovation and security position the company as a strong player in the identity management market. Despite the macroeconomic headwinds and the impact of the security incident, Okta remains focused on driving profitable growth and solidifying its position as the go-to identity partner for businesses and organizations worldwide.

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