Even though companies announce acquisitions with much fanfare, the actual process to merge two disparate organizations is difficult, and it doesn't always work out. When Okta (OKTA 3.31%) announced its massive $6.5 billion purchase of Auth0, another identity-management specialist, not surprisingly, some investors were skeptical. On a Motley Fool Live episode recorded on June 16, Fool.com contributor Brian Withers discusses Okta's most recent results and why this acquisition may turn out to be a success.
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Brian Withers: Moving on to Okta, the company that's spelled just like the ticker or vice versa, O-K-T-A. The current quarter was really stellar, but I'm excited about what's ahead for this company. Quickly, the current quarter had revenue growth of 37 percent year-over-year and seven percent sequentially. Pretty awesome considering this is without its recent acquisition of Auth0.
Remaining performance obligations, this is a metric that I like to look at for SaaS companies. It's the value of all contracts not yet recognized as revenue and that grew faster than revenue at 52 percent, meaning that customers are signing up for more lucrative and longer contracts, and the company expects this to continue even without considering the effects of Auth0.
It finalized the acquisition [on] May 3rd and will include its revenue going forward in the next earnings release. It expects Auth0 to be about 200 million in annual recurring revenue, which is about 15 percent of the overall combined business. But what's more interesting now is that the companies have had more time together. The combination of Okta's low-code/no-code model and Auth0's developer-friendly model, very different customer sets there, are very complimentary and there's even more opportunity than initially thought to cross-sell on customers, have more international reach, and more complementary products.
Lastly, the company raised its current revenue guidance to reflect Auth0's impact to [be] 46 percent year-over-year [growth] and expects to reach four billion in annual revenue by FY 2026. Great quarter all around and impressive looking runway ahead.