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Okta's (OKTA) Q1 Loss Narrows Y/Y, Revenues Beat Estimates
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Okta Inc. (OKTA - Free Report) reported first-quarter fiscal 2018 loss of 50 cents per share (excluding stock-based compensation and amortization of acquired intangibles), 51.9% narrower than the year-ago quarter.
Including stock-based compensation, the loss was 72 cents per share. The Zacks Consensus Estimate was pegged at a loss of 61 cents.
Revenues of $53 million surpassed the Zacks Consensus Estimate of $48.52 million and also increased 66.8% on a year-over-year basis.
We note that following the earnings announcement, shares increased around 7.5% in after hours trading. The stock has underperformed the Zacks Internet Software/Services industry since the company went public on Apr 7.
While the stock returned 5.7%, the industry gained 10.6% over the same time frame.
Revenue and Operations
Subscription revenues increased a massive 75.4% year on year, primarily attributed to accelerated adoption of the company’s flagship product, Identity Cloud.
Professional Services revenues grew 10% but the negative gross margin in this segment widened from negative 10% to negative 25.5% due to the unavailability of major fixed deals in the reported quarter.
Geographically, 86% of the revenues were contributed by U.S customers, with the majority of the remaining 14% coming from Europe, Middle-East and Africa (EMEA).
Research and development expenses increased to $12.1 million from $8.1 million in the year-ago quarter due to investment in innovation.
Gross margin was up 594 basis points (bps) to 69.2%. Operating margin also saw an improvement of 24 bps, and was negative 37%. High subscription rates led to the improvement in margins.
Okta ended the quarter with $224.2 million in cash, cash equivalents and short-term investments. Free cash flow was negative $13.3 million or 25.2% of total revenue.
Outlook
For second-quarter fiscal 2018, the company expects revenues to be in a range of $55–$56 million. Non-GAAP net loss per share is anticipated to be between 25 cents and 26 cents.
Our Take
The company recently received FedRAMP certification, which has placed it in a strong position. It can now work in the U.S. government agency market, which will eventually add to its top line in the long term.
With a customer base of over 3350 organizations, including companies like Wyndham Worldwide , its growth trajectory looks solid.
Demand for cloud-based computing has increased dramatically but at the same time instances of cybercrime are also on the rise. Hence, Okta’s solutions for authentication of identity are much in demand.
However, steep competition from industry leader Microsoft (MSFT - Free Report) is a headwind.
Notably, the long-term growth rate for Applied Optoelectronics is 20%.
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Zacks just released a Special Report to guide you through a space that has already begun to transform our entire economy...
Last year, it was generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for those who make the right trades early.
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Okta's (OKTA) Q1 Loss Narrows Y/Y, Revenues Beat Estimates
Okta Inc. (OKTA - Free Report) reported first-quarter fiscal 2018 loss of 50 cents per share (excluding stock-based compensation and amortization of acquired intangibles), 51.9% narrower than the year-ago quarter.
Including stock-based compensation, the loss was 72 cents per share. The Zacks Consensus Estimate was pegged at a loss of 61 cents.
Revenues of $53 million surpassed the Zacks Consensus Estimate of $48.52 million and also increased 66.8% on a year-over-year basis.
We note that following the earnings announcement, shares increased around 7.5% in after hours trading. The stock has underperformed the Zacks Internet Software/Services industry since the company went public on Apr 7.
While the stock returned 5.7%, the industry gained 10.6% over the same time frame.
Revenue and Operations
Subscription revenues increased a massive 75.4% year on year, primarily attributed to accelerated adoption of the company’s flagship product, Identity Cloud.
Professional Services revenues grew 10% but the negative gross margin in this segment widened from negative 10% to negative 25.5% due to the unavailability of major fixed deals in the reported quarter.
Geographically, 86% of the revenues were contributed by U.S customers, with the majority of the remaining 14% coming from Europe, Middle-East and Africa (EMEA).
Research and development expenses increased to $12.1 million from $8.1 million in the year-ago quarter due to investment in innovation.
Gross margin was up 594 basis points (bps) to 69.2%. Operating margin also saw an improvement of 24 bps, and was negative 37%. High subscription rates led to the improvement in margins.
Okta, Inc. Price, Consensus and EPS Surprise
Okta, Inc. Price, Consensus and EPS Surprise | Okta, Inc. Quote
Balance Sheet and Cash Flow
Okta ended the quarter with $224.2 million in cash, cash equivalents and short-term investments. Free cash flow was negative $13.3 million or 25.2% of total revenue.
Outlook
For second-quarter fiscal 2018, the company expects revenues to be in a range of $55–$56 million. Non-GAAP net loss per share is anticipated to be between 25 cents and 26 cents.
Our Take
The company recently received FedRAMP certification, which has placed it in a strong position. It can now work in the U.S. government agency market, which will eventually add to its top line in the long term.
With a customer base of over 3350 organizations, including companies like Wyndham Worldwide , its growth trajectory looks solid.
Demand for cloud-based computing has increased dramatically but at the same time instances of cybercrime are also on the rise. Hence, Okta’s solutions for authentication of identity are much in demand.
However, steep competition from industry leader Microsoft (MSFT - Free Report) is a headwind.
Zacks Rank & Key Pick
At present, Okta has a Zacks Rank #3 (Hold).
A better-ranked stock in the broader technology space is Applied Optoelectronics, Inc. (AAOI - Free Report) , carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Notably, the long-term growth rate for Applied Optoelectronics is 20%.
3 Top Picks to Ride the Hottest Tech Trend
Zacks just released a Special Report to guide you through a space that has already begun to transform our entire economy...
Last year, it was generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for those who make the right trades early.
Download Report with 3 Top Tech Stocks >>