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Why Okta Is Down 5.8% despite Its Earnings Beat

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Aug. 29 2019, Published 11:47 a.m. ET

High-growth cybersecurity company Okta (OKTA) announced its fiscal 2020 second-quarter results (for the period that ended in July) after the market closed yesterday. The company reported revenue of $140.5 million, a rise of 49% year-over-year. Its adjusted EPS were -$0.05.

Okta reported sales of $94.58 million and EPS of -$0.15 in the second quarter. Analysts expected the company to post sales of $131.2 million and EPS of -$0.10 in the quarter. So why have its shares fallen despite its earnings and revenue beats?

Okta expects revenue of $143 million–$144 million and EPS of between -$0.13 and -$0.12 in the third quarter of fiscal 2020. For fiscal 2020, Okta expects sales of $560 million–$563 million and EPS of between -$0.44 and -$0.42.

In comparison, analysts expect it to see sales of $140.53 million and EPS of -$0.09 in the third quarter. They also expect Okta’s sales to be $549.06 million and its EPS to be -$0.46 in the year. So far today, its stock is down 5.8% and is trading at $125.47.

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What drove Okta’s revenue in the second quarter?

Okta managed to grow its subscription sales by 51% in the second quarter, while its billings were up 42%. It added 450 new customers, bringing the total customer count to 7,000. Around 17% of enterprise customers have an annual contract value of $100,000, and this number continues to grow for the company.

Company CEO Todd McKinnon stated, “We had another exceptional quarter with strong growth in subscription revenue, billings, and remaining performance obligation. Identity plays a foundational role as organizations look to adopt more cloud technologies and accelerate their businesses’ digital transformation in a highly secure and easy to use manner.”

He added, “The recent recognition we received from notable industry research providers further validates our view that Okta has become the identity standard for organizations worldwide ranging from fast-growing businesses to the world’s largest organizations. Our success is achieved by helping these organizations with their mission-critical initiatives with our growing platform of identity solutions. We couldn’t be more excited about the tremendous market opportunity ahead of us.”

Stock has gained 95% year-to-date

Despite the pullback today, Okta stock has generated staggering returns so far this year. The stock is up 95% year-to-date and a whopping 427% since its IPO in April 2017. Okta is still posting a non-generally accepted accounting principles loss and is trading at a premium valuation. Any earnings or revenue miss will likely result in a significant correction.

But the company’s growth is far from over. Analysts expect Okta’s sales to rise 37.5% in 2020 and 31.1% in 2021. They expect its EPS to rise at a compound annual growth rate of 25% over the next five years.

In June, we identified Okta as a solid long-term bet. We remain optimistic about Okta’s performance going forward. The stock is trading 13% below it’s 52-week low and should be on investors’ radar after every major correction. Analysts have a 12-month target price of $129 for Okta.

Aditya Raghunath does not hold any position in Okta stock.

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