What happened

Shares of Okta (OKTA 1.21%) plunged by 37.6% in September, according to data provided by S&P Global Market Intelligence. This decline means shares of the identity management company have lost three-quarters of their value year to date.

Someone typing their username and password onto a blue computer login screen to access secure data.

Image source: Getty Images.

So what

Okta released its fiscal 2023's second-quarter earnings, and the identity management company's revenue and billings continue to climb. Total revenue hit $452 million for the quarter, up 43% year over year (YOY), while billings came in at $491 million, 36% higher than they were a year ago. Okta forecast a bright outlook for its full-year revenue, with the top line expected to come in between $1.81 billion and $1.82 billion for a YOY growth of close to 40%.

Investors, however, were more concerned about CEO Todd McKinnon talking about the problems Okta faced integrating its Auth0 acquisition. With two sets of sales teams, the attrition rate, traditionally around 15%, has spiked to over 20%. Management intends to reduce this attrition rate to 15% again in due course, but it will take time to right the ship and smooth over the issues both organizations face.

To make matters worse, Okta's chief operating officer and co-founder, Freddy Kerrest, announced a 12-month sabbatical to spend time with his family and recharge. Along with this news, the company's chief product officer, Diya Jolly, is leaving after spending four years helping Okta scale its product offerings. Jolly's departure and Kerrest's one-year break come at a critical juncture for the firm as it grapples with a higher interest rate environment and possibly slower growth.

Now what

Despite these troubles, Okta continues to report good traction in growing its customer base. Total customers grew 26% YOY in Q2 2023 to 16,400, and customers with an annual contract value exceeding $100,000 rose 35% YOY to 3,525. In addition, the company has continued to report a high trailing-12-month dollar-based net retention rate of between 120% and 124% over the last 10 quarters.

Okta still enjoys a large total addressable market of around $80 billion. However, in the interim, the company needs to work hard to iron out the problems with Auth0. It may take several quarters before these issues are resolved, so investors need to be patient and continue to monitor both financial and operating numbers.