OkCEO tells MarketWatch that 'small-to-medium businesses are not buying as much as we expected,' ability to sell more products to existing customers is helping software company
Okta Inc. shares rallied in the extended session Wednesday after the identity-management software company topped estimates by a wide margin, and executives predicted adjusted earnings that were more than double what Wall Street had expected.
Okta stock (OKTA) rallied as much as 14% after hours, following a 0.2% rise to close the regular session at $71.44.
In an exclusive interview with MarketWatch ahead of the company's conference call, Okta Chief Executive and co-founder Todd McKinnon said the outlook was based on the company's "mission critical" security products, and the building of its own ecosystem.
"Small-to-medium businesses are not buying as much as we expected," McKinnon told MarketWatch, and that's mostly for macroeconomic reasons. McKinnon said he knows the situation as he had to let go 5% of his own workforce in a reshuffling of the company's own investments.
How Okta is able to issue its outlook has everything to do with customer retention, he said.
"Our business is tilted to upsells and cross-sells vs. new business and it kind of makes sense when people are scrutinizing more things and double-checking every investment on the margin, it's easier to go with a vendor you already have a relationship with," McKinnon told Market Watch.
For the first quarter, the forecast calls for adjusted earnings of 11 cents to 12 cents a share on revenue of $509 million to $511 million, and full-year earnings of 74 cents to 79 cents a share on revenue of $2.16 billion to $2.17 billion. Analysts surveyed by FactSet had forecast a break-even top line on a per-share basis for the first quarter on revenue of $498.5 million, and 36 cents a share on revenue of $2.15 billion for the year.
Okta reported a fourth-quarter loss of $153 million, or 95 cents a share, compared with a loss of $241 million, or $1.56 a share, in the year-ago period. After adjusting for stock-based compensation expenses and other items, the company reported earnings of 30 cents a share, compared with 18 cents a share in the year-ago period. Revenue rose to $510 million from $383 million in the year-ago quarter.
Analysts had forecast earnings of 9 cents a share on revenue of $489.9 million. That was based on the company's forecast 9 cents to 10 cents a share on sales of $488 million to $490 million when the Street had expected a loss.
Chief Financial Officer Brett Tighe had revealed a full forecast for fiscal 2024 last quarter: Executives expect to see adjusted profit on revenue of $2.13 billion to $2.15 billion.
At the end of January, one analyst upgraded Okta to a buy, reasoning that they have "generally happy customers," and that will come into play as cloud software vendors face budget-constrained customers.