Okta (OKTA 2.20%) investors have some big questions heading into its first-quarter earnings report in a few days. The stock of the identity-management software specialist has dropped in recent weeks after the company issued a conservative initial outlook for 2021 following record growth last year.

An update to that prediction is one of several key metrics Wall Street will be watching when Okta announces first-quarter results on Wednesday, May 26. Let's take a closer look.

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Image source: Getty Images.

Slowing growth

The dominant question is whether Okta will suffer a sharp slowdown as compared to 2020. Last year involved near-ideal selling conditions for the company as enterprises raced to put more of their processes online during work-from-home efforts.

Sales jumped 44% on top of 2019's 47% spike, allowing annual revenue to pass $800 million. "The importance of identity and [digital] security have only been elevated over the past year," CEO Todd McKinnon told investors in early March, "as companies around the world are accelerating their adoption of cloud and digital transformation projects."

Early indications, including Okta's order backlog, suggest that this stampede will continue into 2021. But the company will have to outpace its conservative outlook for the stock to recover from weakening expectations on Wall Street. Most investors are looking for sales to land at $238 million in the first quarter, equating to a 30% increase year over year.

Acquisition impacts

Okta recently announced a massive acquisition that directed $6.5 billion toward its purchase of Auth0. This buyout is a crucial piece of management's plan to boost Okta's total addressable market target to over $80 billion from its prior prediction of around $55 billion. It's key to the company's hopes of filling out its portfolio of services into higher-margin products, too.

But there might be growing pains associated with this merger, including surprise costs, integration challenges, and weaker synergies than management initially forecast. Look for McKinnon and his team to address some of those potential pitfalls when they incorporate the Auth0 business into their 2021 forecast on Wednesday.

The new outlook

That outlook currently predicts that sales gains will land at about 30% in 2021, before including the extra benefit of Auth0 revenue. The software-as-a-service (SaaS) company also forecast an adjusted operating loss of around $60 million compared to a modest gain last year and a loss of $49 million in the most recent pre-pandemic year.

Each of these metrics might see a major shift as Okta incorporates Auth0 into its outlook and accounts for the latest platform demand from enterprises in key markets like Europe and the U.S. For now, it seems that the company has a solid order backlog that's being supported by industry growth and the expansion of its portfolio into complementary areas around digital identity management.

Assuming the executive team has a good read on that industry, then Okta should be able to extract lots of value from its Auth0 acquisition while delivering more market-beating returns to shareholders.