In its short history as a publicly traded company, Okta (NASDAQ:OKTA) has developed an enviable pattern. The company regularly smashes its own guidance and raises its future outlook, which has made it a Wall Street darling.
Its third-quarter report was no different. The cloud-based security and identity specialist said revenue jumped 45% to $153 million, well ahead of expectations at $143.7 million. Subscription revenue rose 48% to $144.5 million, and its Remaining Performance Obligations (RPO), effectively a backlog of bookings, rose 68% to $1.03 billion, showing that the company's contracts are becoming bigger and longer. COO Frederic Kerrest said Okta was starting to see contract lengths of five years or longer, a sign of the company's growing reputation and customer trust. Current RPO, which will be recognized over the next year, rose 52% to $515.9 million, which bodes well for 2020.
On the bottom line, Okta's per-share loss widened from -$0.04 to -$0.07 as expenses rose alongside revenue, though that beat estimates at -$0.12.
The company also raised its full-year guidance, now calling for revenue growth of 44% to between $574 million and $575 million, up from a previous range of 40%-41%. Nonetheless, the stock was trading down about 3% after hours, a sign that the stock may have gotten too pricey and that investors have adjusted to the company's habit of beating its guidance and raising it.
While the market's reaction may have been lukewarm, Okta remains on track to deliver continued growth as it penetrates a market opportunity of at least $18 billion. Let's take a look at a few highlights from the quarter.
Strong customer growth continues
Okta added 400 customers in the quarter to bring its grand total to 7,400, and it added 103 more customers with contract values of over $100,000, bringing that number to 1,325. For the first time, its top 25 customers had contract values of more than $1 million.
Among the customer wins in the quarter, the company highlighted Berry Global, a Fortune 500 manufacturer of plastic packaging products, which shows how companies that are far-removed from the tech world are still seeing value in signing up for Okta's identity and security products. It also signed up a Fortune 50 company that had previously been loyal to Microsoft, showing the company's advantage as a pure-play cloud security company.
Other new and expanded customer relationships in the quarter include athenahealth, Cardinal Health, Tableau, and Dentsu Group, among others.
That growth was also driven by new products, including Dynamic Scale, a new identity product Okta introduced that gives high-traffic apps the support they need for authentication, as Dynamic Scale can handle up to 500,000 authentications in a minute.
Okta also introduced SecurityInsights, a new set of tools that build on Okta's other products to help protect against security breaches and strengthen identity credentials. Finally, Access Gateway allows Okta to work with large companies that have established IT in both the cloud and on-premise, a legacy part of the business that still needs to be served. Access Gateway helps companies reduce costs, improve security and modernize their platforms.
On the earnings call, management gave preliminary revenue guidance for fiscal 2021, which begins in February, calling for $750 million to $760 million, or about 31% revenue growth from the current year. While that guidance seems low, it's likely conservative given the company's trend in past quarters and its strong RPO and billings growth in the recent report. In response to a question about it, CFO Bill Losch said the company was being "prudent" as the fourth quarter is not yet finished.
The secular tailwinds behind Okta should continue to drive strong growth for the foreseeable future. CEO Todd McKinnon summed up those factors, saying, "For a while now, we've talked about the three massive secular market tailwinds that help drive our business. First, organizations are moving to the cloud. Second, they are going through a digital transformation. And the third market tailwind is that businesses are embracing a zero trust security environment. We're still in the very early stages of each of these trends and they are going to be around for many years to come."
Okta, which was recognized as a Leader by Forrester in Zero Trust, remains poised to capitalize on these secular trends. Though it may take time for the stock to grow into its valuation as it now trades for more than 20 times sales, Okta looks set to deliver over the long term.
Editor's note: This article has been corrected. Amazon is not a Dynamic Scale customer.