Okta said attrition in its sales staff has left it with a lot of new employees who need to be taught about its products.
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Okta
posted better-than-expected quarterly results and lifted its financial forecasts for the full year, reflecting continued strong demand for its identity software despite a weaker economy.
But the stock fell hard as the company noted that business growth has been affected by unexpected problems with integrating the identity software company Auth0, which Okta acquired in 2021. In premarket trading Thursday, the stock was down 18% to $74.94.
For its fiscal second quarter, ended July 31, Okta (ticker: OKTA) posted revenue of $452 million, up 43% from a year ago, and ahead of the company’s target range of $428 million to $430 million. On an adjusted basis, the company lost $16 million, or 10 cents a share, far less than the loss of 31 to 32 cents a share it had predicted. Under generally accepted accounting practices, Okta lost $210 million, or $1.34 a share.
Okta finished the quarter with $2.79 billion in remaining performance obligations, up 25% from a year ago. Current RPO, a measure of work expected to be recognized over the next 12 months, was $1.5 billion, up 36%.
For the October quarter, Okta is projecting revenue of $463 million to $465 million, up between 32% and 33%, with an adjusted loss of 24 to 25 cents a share. The Wall Street consensus had been for $464 million in revenue and a loss of 28 cents a share. The issue for the stock is apparently the outlook for current RPO: Okta expects the figure to reach $1.54 billion or $1.55 billion, growing at 30% to 31%, slowing considerably from the July quarter rate.
For the January 2023 fiscal year, Okta now sees revenue of $1.812 billion to $1.820 billion, with a non-GAAP loss of 70 to 73 cents a share. Its previous guidance had called for $1.805 billion to $1.815 billion in revenue, and a loss of $1.11 to $1.14 a share.
CEO Todd McKinnon said in an interview with Barron’s that it was “kind of a mixed quarter” for the company, with strong growth in deals worth $1 million or more, and robust demand from the public sector generally and the U.S. government in particular. But he also said Okta is having some issues with the integration of Auth0, particularly in blending their sales team with the core Okta sales staff.
“This integration has proven harder than we thought,” he said. McKinnon noted that while the deal was closed 18 months ago, the sales teams were integrated more recently, at the beginning of 2022. “The biggest issue was that it wasn’t clear enough how the Okta sales people should sell Auth0,” he said. Okta has been working to simplify the process.
A second problem, he said, is that there has been higher-than-expected attrition in the Okta sales team, so there have been a large number of new hires who need to be educated about the company’s products.
McKinnon says that the sales integration issue shows up not only in the cRPO number, but also in the relatively modest boost in full year guidance given the strong quarter just reported.
As for the impact on the business of the softer macroeconomic environment, McKinnon said that the company has seen “a little bit of lengthening of the sales cycle,” but nothing significant.
“The bigger thing for us in this integration issue.”
Write to Eric J. Savitz at eric.savitz@barrons.com
