Okta (OKTA 73.24, +13.04, +21.66%), which provides cybersecurity relating to
identity management, is trading sharply higher today after reporting Q2
(Jul) results last night. In case you're not familiar, Okta is a provider of
identity security for enterprises. Okta’s leading platform suite, the Okta
Identity Cloud, is a reliable platform that helps organizations to manage and
secure the identities of users of cloud and mobile technologies affiliated with
their businesses. This facilitates and simplifies the smooth integration of a variety
of applications into those organizations' operations. Every day, an organization’s
users -- customers, employees, contractors, partners -- can easily authenticate
into Okta’s platform to use Okta to securely access a wide range of company
assets from a multitude of devices. Companies also use the Okta platform to
provide customers with more modern experiences online and via mobile devices
and to manage interactions with partners.
Given the growth trends in cloud adoption and in the number of applications integrated into business operations, identity protection and authentication is quickly becoming the most critical layer of a company's security. As the nature of doing business has evolved, identity has become the most reliable way to manage user access, adopt cloud and mobile technologies, and protect digital assets. Okta’s approach to identity eliminates duplicative, sprawling credentials and disparate authentication policies, allowing customers to simplify their IT security infrastructures.
Growth in customers with over $100,000 annual recurring revenue (ARR) has been accelerating lately, which is a testament to the increasing strategic need for an identity platform as companies move to the cloud. Okta says this need is pervasive and imperative, and Okta believes it's in the early stages of capitalizing on this high growth opportunity.
Turning to the Q2 (Jul) results, Okta reported a non-GAAP loss of $(0.15) per share, which was flat year/year, but well ahead of prior guidance of $(0.21)-(0.20). Revenue rose 57.0% year/year to $94.6 mln, which also was above prior guidance of $84-85 mln. Subscription revenue was $87.9 mln, an increase of 59% year/year. Looking ahead, Okta expects a Q3 (Oct) non-GAAP loss of $(0.12)-(0.11) and revenue of $96-97 mln. Both guidance metrics are well ahead of market expectations.
On the call, Okta said it continued to see momentum across its business, including particular strength in the enterprise. Growth in customers with over $100,000 annual recurring revenue (ARR) accelerated to 55% year/year growth. During Q&A, Okta said that it is benefitting from big demand tailwinds as companies move to the cloud. Every company is trying to become more of a digital business, and identity is a really important component of facilitating all of those transitions. That message is getting out there. As of the second quarter, Okta’s total customer count had grown to include more than 5,150 organizations.
When asked why the sequential guidance was only flat, Okta said that most of its business going forward is coming from large enterprise customers. Those deals can have longer sales cycles and sometimes be a bit choppier, so Okta is demonstrating prudence with its forecasting. But that said, Okta feels there's a lot of opportunity remaining in the market and feels very positive about the business going forward.
Okta also mentioned on the call that it had a number of customer upsells and new wins in the quarter. For example, an existing Okta customer, 21st Century Fox, is using Okta as a key part of its Zero Trust architecture to manage access for more than 30,000 employees and thousands of partners globally. In making a blockbuster film, 21st Century Fox collaborates with over 200 companies that collaborate on processes from content creation to content distribution. Okta is responsible for connecting Fox with key business partners that are connected into its digital supply chain. The success they have had with Okta over the years has resulted in multiple upsells.
A new customer win in the quarter was Meraki, a leader in networking solutions and a division of Cisco. Meraki was specifically looking for a lifecycle management platform for its 1,500 employees, and they chose Okta after evaluating other options. Okta also added one of the world's largest asset management companies as a new customer in both customer and employee identity management this quarter.
The stock has been strong in recent months, going from $30 in mid-February to a new post-IPO high today above $70. Okta has now reported upside for each of the six quarters since it became a public company in April 2017. Okta's history has been to beat-and-raise. Overall, despite the company not yet being profitable, this was another good quarter for Okta, and that's reflected in today's move in the stock price. Okta is really a strong play on companies moving to the cloud and on their need for identity management.
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