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3 Important Takeaways From Okta's Second-Quarter Earnings Call

By Evan Niu, CFA - Updated Sep 7, 2018 at 5:02PM

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Okta is benefiting from the booming interest in enterprise identity management.

Enterprise identity management specialist Okta (OKTA -0.84%) reported second-quarter earnings last night, and shares have surged to all-time highs following the blockbuster results. Revenue jumped 57% to $94.6 million, and while the company's net loss widened modestly to $16.4 million, or $0.15 per share, on a non-GAAP basis, it was better than analysts were expecting. Okta boosted its full-year guidance to boot, and now expects total revenue for fiscal 2019 to be $372 million to $375 million, up from its prior forecast, issued in June, of $353 million to $357 million in sales.

Beyond the headline results, here are three important takeaways from the conference call yesterday.

Art on a wall inside Okta's offices

Image source: Okta.

Identity is becoming mainstream

CEO Todd McKinnon highlighted one broad tailwind that is helping to drive growth: Organizations are becoming increasingly aware of how important identity access and management (IAM) is. As a clear leader in the IAM space, Okta will only benefit as the overall market continues to grow.

We are seeing identity become mainstream, as organizations recognize the critical role that identity plays in their environment. Our experience in the market has validated our view that identity is becoming more pervasive and imperative for our customers. We believe that the tailwinds driving customer demand for identity solutions are robust and that we are just beginning to capitalize on this rapidly growing opportunity.

Okta's brand is only becoming stronger over time in the minds of many chief information officers and chief information security officers, McKinnon says.

International opportunities abound

Currently, Okta's business remains heavily concentrated in the U.S., with CFO Bill Losch noting:

Geographically, the U.S. represented approximately 84% of our second-quarter revenue, compared to 85% in Q2 last year. Approximately 16% of our second-quarter revenue came from outside of the U.S., which represents growth of 63% over the same period last year. We continue to view our international business as another long-term growth driver.

In dollar terms, that translates into international revenue of just $15.1 million, but IAM is very much a global need. Responding to an analyst's question about where Okta is investing for future growth, co-founder and COO Frederic Kerrest later added, "You're going to see us continue to build out that salesforce, in particular, international, which we've touched on briefly."

Okta now has over 5,000 customers

The company surpassed 5,000 customers during the quarter for the first time, and had a total of 5,150 customers at the end of the quarter, up from approximately 4,700 at the end of the first quarter. Okta continues to execute well in upselling customers, with the number of its biggest customers jumping 55%. Here's Losch again:

Our strong billings growth has also benefited from momentum within our customer base from new customer additions. The total number of customers at the end of the quarter came in at over 5,150. We saw our customers with [annual recurring revenue] greater than $100,000 grow to 837, up 55% year over year, which was an acceleration from Q1. We saw broad additions across our customer base and had record net new total customers and customers with [annual recurring revenue] greater than $100,000, up 450 and 90, respectively, from the previous quarter.

Regarding upsells and expanding customer relationships, McKinnon added that growing awareness is helping the business. "The build versus buy decision in the marketplace is becoming more well-known to be something you can buy. So, you're seeing more deals start with that and then bigger expansions because of that," McKinnon said. "That's an important dynamic there."

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