Investors came into Okta's (NASDAQ:OKTA) fourth-quarter earnings report with high expectations. The stock had already surged 56% year to date on little more than a strong preliminary earnings report and increasing optimism for the opportunities in front of the cloud-based identity solutions provider.
The stock is still less than a year old after debuting on the public markets last April, and it seems that much of the market is only starting to learn about it. The company had already indicated a solid quarter in its preliminary release, and the full report only seemed to confirm investors' hopes.
Okta results: The raw numbers
|Metric||Q4 2017||Q4 2016||Year-Over-Year Change|
|Sales||$77.8 million||$44.8 million||59.3%|
|Net income from continuing operations||($24.7 million)||($18.2 million)||(35.4%)|
|Adjusted earnings per share||($0.10)||($0.66)||84.8%|
What happened with Okta this quarter
Okta continued to execute on its growth strategy, adding new customer relationships and expanding current ones. Below are the some of the highlights in the quarter.
- Subscription revenue increased 64% $72 million, making up the vast majority of total revenue, and gross margin improved 169 basis points to 81.1%, showing the strength of the subscription model.
- Okta added 400 new customers in the quarter, its biggest quarterly net add ever, reaching a grand total of 4,350 customers.
- Net dollar retention, or the amount of money it retains from existing customer relationships, was up 121% over the past year, showing that the company is successfully growing its customer relationships. As an example, management said that Farmers Insurance added several products for customer identity in the quarter, on top of Okta Single Sign-On and Adaptive Multifactor Identification.
- Among the new customers Okta added in the quarter were JetBlue, which is using the Okta Identity Cloud to move away from legacy technologies, and a top-three wireless company, which purchased all five of the products in the Okta Identity Cloud.
What management had to say
CEO Todd McKinnon touted the company's performance during the record quarter, saying, "The strength in our business was driven by more customers and larger deals as well as increased investments from our existing customers."
He was also optimistic about the company's future and the inevitable growth in the cloud-based identity market, adding, "As every organization modernizes its business, and has to do so more securely, we continue to gain traction. Identity is becoming a foundational technology, and organizations in every major industry are turning to Okta for our leadership. Looking forward, we are focused on increasing our share of IT security spend, taking early leadership in the customer identity market, and expanding our leverage with the Okta Integration Network."
On the earnings call, McKinnon also said the company would have updates on new products at its Oktane conference in May, and he also stressed the long-term growth ahead for the company as the enterprise shift to the cloud accelerates.
Despite that opportunity, management sees a significant slowdown in revenue growth ahead, projecting a top-line increase of 33%-35% in the current year for a total of $343 million-$348 million. On the bottom line, it expects an adjusted loss per share of $0.62-$0.67, compared to an adjusted loss of $0.77 per share in the last year. For the first quarter, guidance calls for revenue growth of 49%-50% to $78 million-$79 million and adjusted loss per share of $0.15-$0.16.
While the market had expected revenue growth to moderate, that guidance signals investors should not expect the company to turn profitable anytime soon.