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Key Customer Metrics Okta Investors Should Be Watching

By Brian Withers and Brian Stoffel - Apr 14, 2021 at 7:31AM

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Some are more important than others.

Identity management specialist Okta (OKTA -1.20%) has been a tremendous winner for shareholders. Investors who have held the stock for three years have been rewarded with an amazing six-bagger return. But does the company still have gas left in the tank to grow? On a Fool Live episode recorded on March 17, Fool contributors Brian Stoffel and Brian Withers discuss the company's key metrics and why they remain impressed with this growth stock's prospects. 

Brian Stoffel: I am starting with Okta. For those of you who are unfamiliar, Okta powers identity management. In other words, Okta is in charge of making sure that you are who you say you are on the internet, and with everybody migrating to the internet en masse when COVID-19 lockdowns hit, it has become all the more important. Now, there are two sides to Okta's businesses. The first side to Okta's business is making sure that employees are who they say they are. When the Brians and I, when we have to sign on and work on a paper maybe for a different Motley Fool service, we might get asked to input our Okta identification.

But there's another side, which is making sure that customers are who they say they are, and so some of you who are watching might be asked to do that from time to time when say you want to check your CAPS score. Well, one of the announcements that Okta made when it reported earnings was the fact that it was acquiring a company called Auth0. This was not a small acquisition. They're paying $6.5 billion for it. But the reason they are doing it is that on that customer identity side of the business, Auth0 is really one of the leaders, and so by buying this company up, they are getting all of their business and all of that technology to come on to their platform. They are also doing it mostly via a stock-based merger or acquisition, which is really smart, given how much the stock has run up over the past 12 months.

Now, diving into their actual results, when they reported during the fourth quarter, they shared that their revenue was up 40%; their subscription revenue was up 42%. Those are strong numbers. I could dive through the rest of these, but I am going to teach something real quick. The most important stuff is in the 10-K, where it says Management's Discussion and Key Business Metrics. Tell you what. If you want to hack your way through, finding these key business metrics will help you. Customers that are paying at least $100,000, up 33% to almost 2,000. Dollar-based net retention over 120%. Their current remaining performance obligation jumped 42%, and their remaining performance obligations were up 48%. Now, the only reason that it's important that this one grew faster than this one is that it means that they have customers who are signing longer contracts, and that is good news for the company.

Brian Withers: I actually just wrote an article earlier today on Okta. I'm glad you brought up the customers greater than $100,000 growing at 33%. What's interesting is that it's growing slower than the overall rate. What that says to me is that it's doing a really good job of attracting smaller customers. Maybe they'll get to $100,000; maybe they never will. But it's good that it can serve both the high end, over $100,000, and grow people to that and serve the low end. Is that what you get from those different growth rates?

Brian Stoffel: Completely. Again, these days, I don't even pay that much attention to the dollar-based net retention, because they've got so many big customers signing up that when you sign up and you ask for all 12 products that they have, or maybe it's 14 now, you can't add to that. That's a good thing, because you're starting off with so much. That won't show up in the dollar-based net retention, but it will show up in the remaining performance obligations. Again, it's growing at almost 50%. That's impressive.

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