Earlier this month, Okta (OKTA 5.97%) announced a big-time acquisition.
The cloud-based identity management platform said it would take over Auth0, a well-regarded provider of customer-identity solutions, in an all-stock deal valued at $6.5 billion at the time of announcement, or roughly 20% of Okta's market cap.
The deal will strengthen Okta's leadership in the software-as-a-service (SaaS) identity-and-security market, especially in the customer identity segment and international markets. Okta will also be absorbing a cloud-native company that some had considered to be its biggest competitor.
Now Okta is making another move to pave the way for future growth.
The company announced Tuesday that it had just hired Steve Rowland as its chief revenue officer, a new position at the company. Rowland was previously vice president of Americas at Splunk, and has served in executive roles at a wide range of companies, including DataStax, Apigee, and Blue Coat.
Rowland will focus on driving the company's go-to-market strategy, expanding globally, and ensuring predictable revenue growth. Rowland will report to Susan St. Ledger, who became President of Worldwide Operations last month and also joined the company from Splunk.
The next growth stage
Okta is set to cross $1 billion in annual revenue this year and has delivered strong growth throughout its history, reporting at least 40% revenue growth in every quarter as a publicly traded company. In total, the company's revenue has increased by about five times since it went public in 2017. A company growing that fast needs to scale up quickly.
In an interview, Rowland explained that the cloud adoption happening broadly in the business world will continue to be a major driver of the company's growth, saying that in the aftermath of the COVID-19 pandemic, "All enterprises are rushing to adopt public cloud," and "Cloud adoption is incredibly high." In other words, the market is coming to Okta, the leading independent provider of cloud-based identity solutions that give employees and customers secure digital access.
Comparing identity with infrastructure-as-a-service, Rowland said identity "is not easy to do," and that demands from customers and regulators are constantly changing. The risks of getting identity wrong and allowing a breach are significant, so the technical difficulty involved in Okta's products helps create barriers to entry. As one example of how entrenched Okta has become, it now has more than 7,000 integrations with other software applications and infrastructure providers.
Growing internationally is also a priority for the company, as only 16% of its revenue came from international markets last year. That's one reason the company acquired Auth0, which has a strong international business, and it's also a key component of Rowland's role, as he brings experience working in the Asia-Pacific region and is focused on scaling the company globally.
Over the coming years, Rowland is focused on driving further penetration of the workforce identity and customer identity market, which the company has valued at $55 billion combined. Rowland said that the next challenge for the company wasn't transforming itself but growing into those markets in the most efficient and effective way possible. That's one sign the company is operating from a position of strength, as Rowland's main objective is scaling the business rather than rebuilding or changing the company as he's done in previous positions.
Finally, Rowland said that one thing that attracted him to the company is its culture, and that the founders, CEO Todd McKinnon and COO Frederic Kerrest, want all of the employees to feel like owners and "feel like they're building an iconic company." He also called that approach "really unique" among Silicon Valley companies, as most founders usually have more of a top-down management style.
What to expect in 2021
Okta shares sold off following the release of the company's recent earnings report, in part because investors were disappointed with the company's guidance for fiscal 2022, the current year. Management sees an adjusted loss on the bottom line after reporting a profit last year, and revenue growth slowing to 29%-30%, which excludes any impact from Auth0. On the earnings call, outgoing CFO Bill Losch said that the bottom-line forecast was due to expenses related to scaling the business as it grows its sales force, especially in international markets, and increases its headcount in research and development to drive innovation.
Creating the chief revenue officer position and hiring Rowland look like key parts of that strategy. Investors should keep in mind that Okta's guidance has historically been conservative, so the company could easily overshoot those numbers.
The Auth0 acquisition and the new chief revenue officer post show the company is squarely focused on scaling up to capture the $55 billion opportunity in front of it. Expect Okta to continue ramping up as it extends its leadership in the cloud identity market.