Okta (OKTA -0.20%) shares dipped after hours Wednesday after the company reported fourth-quarter earnings. Despite the sell-off, there was little to complain about in the report.
Revenue for the identity-for-the-cloud leader jumped 63% to $383 million, aided by the acquisition of Auth0 in the spring of 2021. That result easily beat estimates of $359.6 million, and even without the addition of Auth0, revenue was up 39%, the same as stand-alone Okta's full-year growth.
On the bottom line, its loss expanded from $0.06 per share in the year-ago quarter to $0.18 as it absorbed expenses from the Auth0 acquisition. But that was better than the consensus of a per-share loss of $0.24.
Other key metrics also show that Okta continues to execute flawlessly. In 2021, it grew its customer base by 50% to 15,000, including 1,650 new customers from Auth0, and added 1,000 customers in the fourth quarter.
Meanwhile, the company's growth in high-value customers is accelerating. Customers with an annual contract value (ACV) of more than $1 million have increased from 83 in fiscal 2020 to 197 in fiscal 2022, the year just ended. Customers with an ACV above $500,000 rose nearly 150% to 597. Okta also posted a dollar-based net retention rate of 124% -- as strong a growth rate as it's had in the last three years.
Image source: Okta.
The Auth0 acquisition is paying off
A year ago, Okta announced its acquisition of Auth0, a cloud-based customer identity software company. In an all-stock deal, the acquisition was valued at $6.5 billion at the time -- a sizable takeover for Okta, currently valued at nearly $30 billion.
The company just completed the merging of its salesforces and go-to-market teams, and Okta has seen strong benefits from cross-selling between the two platforms. It just added Fifth Third Bank, which became a workforce customer of Okta and bought Auth0 customer identity access software. Similarly, Carvana, a longtime workforce identity customer, signed on to Auth0 in the fourth quarter.
In an interview with The Motley Fool, Okta COO Frederic Kerrest said he was happy with the speed of integration as Okta brought on 800 new employees from Auth0, growing its workforce by 25%, and has mostly finished the integration in just three quarters. Kerrest added, "Remember the No. 1 job was like, 'Both businesses are doing really well. Don't screw it up,'" and the recent evidence shows that strong growth has continued for each business. With customer identity revenue up 59% in the fourth quarter, the growth momentum remains strong three quarters after the acquisition.
International revenue is also soaring, up 119% over the last year, showing that Okta is leveraging another strength of Auth0.
What to expect in 2022
Okta's guidance for 2022 also shows the company has no intention of taking its foot off the gas. For fiscal 2023, it's expecting 37% to 38% revenue growth and $1.78 billion to $1.79 billion, in line with growth from stand-alone Okta in fiscal 2022. Over the long term, it maintained its fiscal year 2026 target of at least $4 billion in revenue and a 20% free cash flow margin. That target implies revenue growth of at least 35% a year for the next four years.
For 2022, the company is focused on driving growth in customer identity management, where it's essentially competing with in-house products. It also sees a growth opportunity in the international market, where fewer travel restrictions should help its salesforce. Kerrest noted that the company was on track to get the Federal Risk and Authorization Management Program's (FedRAMP) high authorization, opening growth opportunities in the federal government, which is also timed with new policies in zero-trust security protocols and multifactor authentication that should drive spending on identity and security software.
With an $80 billion addressable market, the opportunity in front of Okta is still enormous, as it only has half of a percent of that in revenue. Kerrest said the company aims to grow to 50,000 or even 100,000 customers, up from 15,000.
Okta has been a top performer on the market since its 2017 initial public offering (IPO), but with market sentiment shifting against cloud stocks, a repeat of its 600%+ growth since its debut seems unlikely. Still, its FY 2026 targets look very achievable, and the size of the addressable market indicates the company's rapid growth could continue for many years beyond that.
Despite the recent headwinds the stock has faced, Okta continues to widen its lead in cloud identity software, and the future of the business looks as bright as ever.
