Okta Inc., ( NASDAQ:OKTA ), the company that acquired Auth0, is a SaaS business that provides an identity management platform for enterprises, small and medium-sized businesses, government and other organizations.
The company’s competitive advantage comes from selling identity authorization services to highly regulated and large enterprises.
As the news from the acquisition completion was published, analysts revised their estimates for the future of the company.
Okta provides simple and secure access to people and organizations everywhere, which is meant to integrate with multiple account services seamlessly. Our readers may recognize that when logging on to websites they sometimes have an array of choices for logging in: Facebook, Google, Email etc. This has Auth0 and similar identity architecture running in the background.
Oktas’s clients constitute more than 10,650 organizations, including JetBlue, Nordstrom, Siemens, Slack, T-Mobile, Takeda, Teach for America, and Twilio. Okta boasts a 120% dollar based retention rate for clients, which means that they saw a mix of increased number of customers and more subscriptions sold per customer. The growth comes mostly from new and larger clients.
Of its 10,650 client base, 2075 of them have an annual subscription of US$100k and up. This seems to be the primary target of the company, since larger clients provide more stable revenues.
A bit over a week ago, you might have seen that Okta, released its quarterly result to the market. The early response was not positive, with shares down 6.7% to US$222 in the past week. The results were mixed overall, with revenues slightly ahead of analyst estimates at US$251m. Statutory losses, by contrast, were 8.4% larger than predictions at US-$0.83 per share. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
NasdaqGS:OKTA Earnings and Revenue Growth June 2021
Taking into account the latest results, the consensus forecast from Okta's 25 analysts is for revenues of US$1.22b in 2022, which would reflect a major 35% improvement in sales compared to the last 12 months.
When digging deeper, we see that analyst’s estimates are in line with management guidance issued on 26 May 2021. The rationale behind the increase is the estimated growth in revenues driven by the newly acquired Auth0 service.
Losses are forecast to balloon 45% to US$3.57 per share. Before this earnings announcement, the analysts had been modeling revenues of US$1.09b and losses of US$2.76 per share in 2022. Ergo, there's been a clear change in sentiment, with the analysts lifting this year's revenue estimates, while at the same time increasing their loss per share numbers to reflect the cost of achieving this growth.
The consensus price target stayed unchanged at US$272, seeming to suggest higher forecast losses are not expected to have a long term impact on the valuation. The consensus price target is just an average of individual analyst targets, so it could be handy to see how wide the range of underlying estimates is. There are some variant perceptions on Okta, with the most bullish analyst valuing it at US$300 and the most bearish at US$235 per share. With such a narrow range of valuations, the analysts apparently share similar views on what they think the business is worth.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Okta's growth to accelerate, with the forecast 50% annualized growth to the end of 2022 ranking favorably alongside historical growth of 37% per annum over the past three years. Compare this with other companies in the same industry, which are forecast to grow their revenue 15% annually. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Okta to grow faster than the wider industry.
The Bottom Line
The most important thing to note is the forecast of increased losses next year, suggesting all may not be well at Okta. Happily, they also upgraded their revenue estimates, and are forecasting revenues to grow faster than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Okta going out to 2026, and you can see them for free on our platform here.
Don't forget that there may still be risks. For instance, we've identified 4 warning signs for Okta that you should be aware of.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.