9/1/2022: Okta Crashed 33.7% after Earnings
Results beat expectations but its stock price tumbled
Okta reported earnings for the quarter ending July 31, 2022. Quarterly revenue grew 43% year-over-year; subscription revenue grew 44% year-over-year. Overall, it’s a very strong quarter but the stock crashed 33.7%. There appears to be some issues with the Auth0 integration. The management saw a higher attrition rate and some confusion of the integration on the field. Management noted that they are working to slow attrition, including making changes to their org structure to better align with their strategy as well as improving sales comp structures.
I think Okta is a company with a pretty strong moat and their product is super sticky. Their main product is the single sign-on software most medium- to large-size companies need to manage employee access on cloud software. I believe they are the biggest player in the access management field and I think it’s not a bad stock to own with the right place.
After the crash, Okta’s enterprise value is less than $10B now. With $1.8B projected revenue for FY 2023 (ending Jan 31, 2023), their P/S ratio is 5.55, which is lower than the long term average of public SaaS companies of 8. Their gross margin is 75+%. Their revenue growth rate + cash flow margin is 44% + (-4%) = 40%, which meets the criterion of rule of 40 exactly. Sure, they have some short term integration issues. But well, it’s short term. They are selling software that’s essential, uncontroversial, high margin and low competition. I am not really in the market to buy more stocks at the moment. But I think now is a good time to buy OKTA 0.00. People rushed to buy OKTA 0.00 when it was super expensive at $200+ last year but now no one wants it at a super cheap price of $60. Investor psychology is fascinating.