The biggest knock against Okta (OKTA -0.65%) stock in 2022 has been that the tech specialist is generating significant losses. That central fact didn't change in the company's late-November earnings update. But Okta still made progress toward a return to profitability. The cybersecurity specialist is also projecting faster growth for fiscal 2023.
Let's look at a few reasons why Okta's latest results make it a more attractive stock right now.
1. Growth held up well
Investors were worried heading into the report that Okta would announce another disappointing sales result. Revenue missed management's short-term outlook in the previous quarter, after all, as executives said a slowing global economy was impacting IT spending.
There wasn't a similar miss in this quarter's report. Instead, Okta blew past management's third-quarter forecast that predicted sales of roughly $464 million. Actual revenue was $481 million, translating into a 37% spike, year over year. "We're pleased with our third quarter results," CEO Todd McKinnon said in a press release .
Executives said in a conference call that economic pressures are still impacting the business and that the selling environment might get worse before it gets better. Yet it is still encouraging to see Okta return to a faster growth pace.
2. Moving toward profitability
Okta's acquisition of the Auth0 business has created major disruptions, including to its bottom line. But there are signs pointing to an end to these issues ahead. The company's operating losses moderated, declining to 43% of sales from 57% a year ago. And Okta returned to profitability on a non-GAAP basis, with earnings reaching $300,000 compared to a $10 million loss a year earlier.
Okta is planning to continue cutting costs and working to better integrate Auth0 into its portfolio. This forecast reflects management's view that the selling environment will "get worse before getting better," executives said in a conference call.
The good news is that Okta is on track to take a big step toward profitability this fiscal year, setting the stage for a potentially impressive earnings spike once industry conditions improve again.
3. A brighter future
Okta raised its fiscal-year outlook on both the top and bottom lines. Sales should land as high as $1.84 billion, representing 41% growth. The prior forecast was a bit more modest at 39% to 40%.
The earnings picture brightened more dramatically. Okta is now expecting operating losses of around $41 million rather than the $108 million loss executives had projected back in late August. That big shift is a major reason why the stock jumped immediately following the earnings announcement.
It's great news for shareholders that Okta is both growing faster and moving quickly toward profitability. That success implies that the stock's nearly 80% decline in 2022 through November was too harsh. Still, investors can expect a few quarters of potentially weakening sales trends ahead, based on management's depiction of slower IT spending.
Looking further out, Okta could reasonably target positive operating earnings in the next fiscal year, which starts in February. The competitive advantages of its bigger service portfolio might become clearer by then, too.
Investors have a good shot at market-beating returns by owning this stock if they are willing to sit through some volatility. A period of weak sales ahead wouldn't threaten the bullish thesis, and cost cuts are putting Okta on a path toward expanding margins. That's why it's time to consider putting this growth stock back on your watch list.
