This week was huge for Okta (OKTA -0.69%) stock. Shares of the cloud-identity management specialist surged about 20% following the company's fiscal second-quarter update. This huge gain reflects investors' incremental confidence in the stock as the tech company's execution on its efficiency and growth plans is showing up in its financial results.
As investors digest the earnings report and try to make sense of whether or not the stock's higher price following this big jump makes sense, here are three ways the company is doing well and, ultimately, impressing investors.
1. Strong top-line growth
First, there's Okta's better-than-expected fiscal second-quarter revenue growth. Sales rose 23% year over year during the period to $556 million. Not only was this well ahead of management's guidance for about 18% growth during the period, but it crushed analysts' average view for revenue of about $535 million.
"Both new and existing customers are getting tremendous value from the Okta platform as they seek to simplify their infrastructure while increasing security by integrating identity into their most important projects," said Okta CEO Todd McKinnon when describing the momentum the company is seeing with customers.
Speaking to the way existing customers are increasing spend on the platform, Okta said its dollar-based net-retention rate from existing customers for the trailing-12-month period was 15%, "driven by both upsell and cross-sell activity," said Okta Chief Financial Officer Brett Tighe during the company's earnings call for the quarter.
2. Improved efficiency
Another area in which Okta shined was its efforts to improve business efficiency. This was particularly apparent in the company's bottom line. The cloud-identity management platform provider's generally accepted accounting principles (GAAP) loss improved from $208 million in the year-ago period to a loss of $162 million. The improvement is even more evident on a percentage basis; Okta's GAAP loss in fiscal 2024's Q2 was 29% of sales. Its GAAP loss in the same period of fiscal 2023 was 46% of sales.
Management pointed to the company's adjusted operating profit and cash-flow progress to highlight its momentum in improving its cost structure. Its non-GAAP operating income was $59 million for the period, up from a non-GAAP operating loss of $15 million in the year-ago period. Meanwhile, cash from operations grew from $19 million to $53 million.
Tighe explained during the company's earnings call that he's pleased with how the company has reduced its cost structure while still investing in its platform to help drive growth.
3. An upbeat outlook
The company's investments in its platform, even as it is mindful of its cost structure, are paying off. Okta lifted its outlook for full-year revenue. Management said it now expects full-year revenue to increase about 19% year over year. The company was previously expecting revenue to grow at a rate between 17% and 18% year over year.
This confidence in the company's momentum comes as upsells to existing customers are trending well, Tighe noted in the company's earnings call.
However, management warned investors that the company is maintaining a cautious view for the near term as the macroeconomic environment remains challenging. The negative impacts of this environment are apparent in the company's new customer growth; total customers only increased 12% year over year. But there is enough positive momentum in upsells and in the company's progress with larger organizations and public sector agencies that management was still able to impress investors with its top-line strength and improved full-year outlook.
