Since falling alongside a broader market sell-off in high-growth tech stocks in October and part of November, shares of Okta (OKTA -2.62%) have rebounded sharply recently. The stock is up 40% since Nov. 20. Helping this rebound was the enterprise identity-management company's strong fiscal third-quarter results, which highlighted Okta's surging revenue, improving cash flow, and more.
With such an impressive rebound in the company's stock price, and given the stock's more-than-150% gain over the past 12 months, Okta may be attracting the attention of some new investors. Is the company's growth really as impressive as its soaring stock price implies?
Here's a look at Okta's robust business growth in three key metrics from its third quarter.
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1. 58% revenue growth
Okta's third-quarter revenue jumped 58% year over year to $105.6 million. This beat a consensus analyst estimate for revenue of $99.9 million. Even more notable, this was an acceleration compared with Okta's 57% year-over-year revenue growth in Q2.
This revenue was driven by a 58% year-over-year increase in subscription revenue, which accounts for 94% of total revenue. Subscription revenue, of course, was helped by a 42% year-over-year increase in customers during the quarter -- a slight acceleration compared with the company's year-over-year customer growth in Q2.
2. $1.4 million of free cash flow
Okta achieved positive cash flow for the first time in Q3. Third-quarter free cash flow, or cash from operations less capital expenditures, came in at $1.4 million, or 1.3% of total revenue. This is a huge improvement from negative free cash flow of $11.2 million, or negative 16.8% of revenue, in the year-ago quarter.
Okta's cash from operations similarly improved significantly, swinging from negative $9.5 million in the year-ago quarter to positive $6.4 million in the company's third quarter of fiscal 2019.
Notably, however, management said in its third-quarter earnings call that even though it is "encouraged" by its cash flow performance during the period, it still expects variability in its free cash flow margin due to its ongoing headquarter office expansion and fluctuations in working capital.
3. 55% growth in large customers
Helping the company's growth in Q3 was a steep increase in customers generating over $100,000 in annual recurring revenue for Okta. These customers were up 55% year over year during the quarter, Okta said. Put another way, of the more than 450 customers the company added during Q3, a record 100 of them had an annual contract value of $100,000 or more.
This strong growth in customers with over $100,000 in annual recurring revenue is getting the attention of Okta's partners, helping the company expand and improve its ecosystem. "So, if you talk about 100 new deals over $100,000 in [annual recurring revenue], partners notice that as well and they want to be on board with the latest trends and the leader in this industry," said Okta CEO Todd McKinnon in the company's third-quarter earnings call.
Okta's accelerating growth, its positive free cash flow, and its strong momentum in large customers make a good case for the company's prospects over the long haul.
