What happened
Okta (OKTA +4.07%) investors had a great week. The cybersecurity specialist's shares jumped 35% through Thursday trading, according to data provided by S&P Global Market Intelligence. That's compared to a 1.3% increase in the wider market. The stock remains in deeply negative territory for the year, though. It is down nearly 70% since the start of 2022.
This week's rally was sparked by a surprisingly strong third-quarter earnings report.
So what
Okta announced late Wednesday that Q3 sales rose 37% to $481 million. That result easily surpassed the company's late August forecast of sales landing between $463 million and $465 million. Okta executives said the company is making progress in its integration of the recently acquired Auth0 business.
NASDAQ: OKTA
Key Data Points
"We're pleased with our third quarter results and the early traction of our refined go-to-market strategy," CEO Todd McKinnon said in a press release.
Investors were even happier to see that Okta took a big step toward profitability. Net losses shrank to less than $1 million on a non-GAAP basis compared to $10 million a year ago. Okta generated positive free cash flow, too.
Now what
The best news is that Okta now sees net losses moderating at a much quicker pace over the next several months thanks to cost cuts. Operating loss will likely land at just $40 million, executives project, rather than the over $100 million loss management had forecast a few months ago.
Still, the stock remains risky given its exposure to slowing IT spending. Okta is already seeing signs of pressure on the industry, executives said in a conference call, which is making it harder to win new clients.
The long-term outlook is bright for this software-as-a-service stock, assuming Okta can steadily improve profit margins while gaining market share. But the next several quarters could be volatile thanks to weakening economic growth rates around the world.
