Please ensure Javascript is enabled for purposes of website accessibility

3 Numbers to Watch in Okta's Upcoming Earnings Report

By Demitri Kalogeropoulos – Aug 28, 2021 at 8:39AM

Key Points

  • Okta has a ballooning growth opportunity, but it also faces a few big challenges.
  • The merger could add volatility as management works to integrate the Auth0 business.
  • Look for a potentially bright outlook if booking trends held up through the early summer weeks.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sales trends aren't the only metric worth following on Wednesday.

Okta (OKTA -1.28%) investors might be in for a volatile trading week ahead. The digital identity management giant's second-quarter earnings report is due out on Wednesday, Sept. 1, and it will include major updates on the company's growth trends through the early summer months.

CEO Todd McKinnon and his team will issue a new outlook for the year that might paint a different picture than the one that executives outlined back in late May.

Let's take a closer look.

Person making a video call on a laptop.

Image source: Getty Images.

Sales trends

In late May, management forecast a strong Q2 performance, with sales rising nearly 50% to just below $300 million. That boost would mark an acceleration over the previous quarter's 37% increase, but some of Okta's gains will come from the recent addition of the Auth0 business.

Executives should comment on the strength of the business with and without the Auth0 acquisition. Organic sales trends were accelerating in Q1, they told Wall Street analysts, and success there should show up in healthy growth for billings, subscription revenue, and retention. Okta has been renewing clients at far higher annual commitments in recent quarters, which is great news since it implies a long growth runway ahead.

Financial wins

Investors are bracing for another quarter of losses, with Q2 red ink landing at between $55 million and $53 million. Operating losses might be higher in the short term as Okta incorporates the Auth0 business, which is currently prioritizing growth, into the portfolio.

For a clearer view of the long-term earnings power of the business, watch cash flow. Free cash flow hit a record 21% of sales last quarter, and management called that performance "a terrific illustration of the leverage in our model." Ideally, cash flow will remain solidly positive over the next few quarters even as Okta reports net losses.

A new outlook?

A lot has changed since Okta issued its last fiscal year outlook, including resurgent coronavirus case levels in key markets like the U.S. Other risks to the fiscal 2022 performance include hiccups in the integration of the Auth0 business and more competition in this attractive software niche.

Heading into Wednesday's report, Okta is predicting sales will rise between 45% and 47% this year thanks to a combination of the new Auth0 business and organic growth in its core identity services portfolio. Non-GAAP operating loss might land anywhere between $172 million and $167 million, marking a step backwards from last year's $8 million gain.

Investors shouldn't be worried about that (likely temporary) earnings slump, so long as Okta continues winning new business even as its addressable market balloons.

Still, any change to the company's fiscal 2022 outlook might concern investors on Wednesday. The good news is the stock has underperformed the market over the past year and since the start of 2021. That means expectations are restrained heading into this week's announcement.

Demitri Kalogeropoulos owns shares of Okta. The Motley Fool owns shares of and recommends Okta. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Okta Stock Quote
Okta
OKTA
$50.09 (-1.28%) $0.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.