Okta hikes annual earnings guidance by about a third after weakness doesn't materialize, stock rallies nearly 10%

By Wallace Witkowski

Worst-case macro scenario didn't happen as CEO McKinnon credits large deals from large companies in MarketWatch interview

Okta Inc. late Wednesday hiked its annual earnings outlook by about a third after the identity-management software company's worst-case scenario of weak business spending never materialized.

Okta (OKTA) shares rallied 9.2% after hours, following a 2.4% gain to close at $73.57.

Okta said sees adjusted third-quarter earnings of 29 cents to 30 cents a share on revenue of $558 million to $560 million, while analysts had forecast 29 cents a share on revenue of $552.9 million,

But the big boost comes in Okta's annual guidance. For the year, Okta expects $1.17 to $1.20 a share on revenue of $2.21 billion to $2.22 billion, while analysts surveyed by FactSet expected 91 cents a share on revenue of $2.18 billion.

Okta last had forecast earnings of 88 cents to 93 cents a share on revenue of $2.18 billion to $2.19 billion.

Last quarter, Okta shares fell under pressure after the company gave a strong forecast but warned macroeconomic conditions could worsen

In an interview with MarketWatch ahead of the company's conference call, co-founder and Chief Executive Todd McKinnon said the company had prepped its outlook for the worst, which never materialized.

What happened? "We were assuming the macro would get worse, but found stabilization," McKinnon told MarketWatch. Also, the company's Identity Governance product is going well, but what really played to Okta's strength was large deals with large companies.

Of the top 25 $1 million-plus deals that Okta has under contract, the total value of those deals was for more than $100 million, notable for a company Okta's size, McKinnon told MarketWatch.

Noticeably absent from Okta's earnings release was mention of AI, or artificial intelligence. McKinnon said there's no real reason to have AI in the earnings release: "It's like saying 'computer science,'" in terms of generality. That said, McKinnon said he thinks that AI is "underrated" and noted that Microsoft Corp. (MSFT)-backed OpenAI is one of those top-25 customers after first signing up with Okta three years ago.

Okta reported a second-quarter loss of $111 million, or 68 cents a share, compared with a loss of $210 million, or $1.34 a share, in the year-earlier period. After adjusting for stock-based compensation expenses and other items, the company reported earnings of 31 cents a share, versus a loss of 10 cents a share a year before. Revenue rose to $518 million from $414.9 million in the year-ago quarter.

Total revenue rose to $556 million, an increase of 23% over last year's $452 million. Analysts had forecast 22 cents a share on revenue of $534.7 million.

Okta shares have gained 27% year to date as of Wednesday's close, compared with an 18% rise by the S&P 500 index , and a 34% gain for the tech-heavy Nasdaq Composite Index .

-Wallace Witkowski

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08-30-23 2108ET

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