Okta lifts its earnings outlook while taking 'prudent' view of customers' budgets

By Emily Bary

Some smaller customers are showing spending caution, but Okta says its software can help with that

Okta Inc. boosted its outlook on Wednesday, even as the company takes a "prudent" view in light of some macroeconomic pressures on smaller customers.

After initially falling around 7%, shares ended the extended session up 1.7%.

The company now expects $2.530 billion to $2.540 billion in revenue for the full year, whereas its prior outlook called for $2.495 billion to $2.505 billion. Okta (OKTA) raised its earnings forecast as well, with that now calling for $2.35 to $2.40 in adjusted earnings per share, which compares with the prior forecast of $2.24 to $2.29.

In looking at the current quarter, Okta anticipates revenue of $631 million to $633 million along with 60 cents to 61 cents in adjusted earnings per share. Analysts tracked by FactSet were modeling $616 million and 54 cents, respectively.

"In the short term, honestly, we're being pretty prudent," Chief Executive Todd McKinnon told MarketWatch on Wednesday. While Okta's enterprise business is "quite healthy," there are varied pressures impacting smaller customers. One is around hiring, but also small- and medium-sized businesses are "really scrutinizing purchases [and] taking longer to purchase things," he said.

Okta sees ways to benefit, though, in an environment where customers are being more disciplined with their spending. The company's identity-management software lets employees access applications, and "one of the things that our software can do is it can help customers understand which technology they're actually using," McKinnon said.

In other words, if a business pays for 16 types of software focused on product management, Okta's technology can show customers that employees are only really using three of them.

For the fiscal first quarter, Okta generated revenue of $617 million, up 19% from a year before and ahead of the $604 million consensus view.

Okta reported a net loss of $40 million, or 24 cents a share, compared with a loss of $119 million, or 74 cents a share, in the year-earlier period.

After adjustments, the company saw earnings per share of 65 cents, whereas analysts were looking for 54 cents.

McKinnon said the company's focus on discipline continues to pay off.

"With some of the softness in the economy, especially in small and medium businesses the last couple years, we've dialed back some of the sales and marketing investments," he said. That's helped improve Okta's profits.

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At the same time, the company continues to invest in the opportunity it sees in the security market, especially since most breaches involve someone getting access to account credentials.

McKinnon doesn't see Okta as a pure cybersecurity company, which brings tradeoffs. It takes more time to implement and integrate Okta than it might to tack on a "pure cyber" offering, but once customers are on board, Okta benefits from being a "more steady grower over time," he said.

-Emily Bary

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05-29-24 2040ET

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