Okta Closes Out Fiscal 2023 With a Renewed Emphasis on Profitability

We are raising our fair value estimate for no-moat Okta OKTA to $76 from $71 after the firm reported strong results to close out fiscal 2023 with a better-than-expected profitability outlook for fiscal 2024. The firm expects a sharp slowdown in sales for the upcoming year (fiscal 2024), a forecast underpinned by a weak macro outlook and as the firm works to resolve Auth0-related sales challenges. However, we’re not deterred by this rebuilding year for Okta as the firm recalibrates its execution strategy while emphasizing profitability in a turbulent macro environment. With shares up more than 10% after hours, we view Okta’s shares as fairly valued.

Fourth-quarter revenue increased 33% year over year to $510 million, with subscription and professional services sales growing at 34% and 10%, respectively. Subscription revenue was ahead of expectations and total revenue came in well ahead of management’s prior estimate of $489 million at the midpoint of guidance. We have previously highlighted Okta’s difficulties in its go-to-market motion as the firm struggled to integrate Auth0. However, we are encouraged by Okta’s strong revenue growth, as the company continues to make strides in improving its sales execution. Okta’s dollar-based net retention stayed strong at 120% for the fiscal fourth quarter. On the new user addition front, the firm grew its number of customers with an annual contract value, or ACV, of more than $100,000 by 29% year over year to end the quarter at 3,930.

On the profitability front, Okta’s more disciplined approach to operating spend was evident as the firm expanded its adjusted operating margins to 9% from negative 6% a year ago. The firm’s adjusted EPS came in at $0.30, well above management’s guidance of $0.095. We expect continued emphasis on efficiency and cost-savings throughout fiscal 2024, as Okta reduces inefficiencies within its sales model.