Okta’s (NASDAQ:OKTA) Q3 Sales Beat Estimates, Shares Rise 18.9%

Identity management software maker Okta ( OKTA ) reported third-quarter 2024 results that exceeded market revenue expectations, with revenue up 13.9% year over year to $665 million. Revenue expectations for next quarter were upbeat at $668 million at the midpoint, 2.7% above analyst estimates. Non-GAAP earnings of $0.67 per share were 14.8% above analyst consensus estimates.

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• Gain: $665 million vs. analyst estimates of $649.6 million (13.9% YoY growth, 2.4% better)

• Custom EPS: $0.67 vs. analyst estimates of $0.58 (14.8% better)

• Adjusted operating result: $138 million vs. analyst estimates of $120.2 million (20.8% margin, 14.8% better)

• Revenue guidance for Q4 CY2024 is in the middle at $668 million, above analyst estimates of $650.7 million

• Management raised expectations for full-year adjusted earnings per share to $2.76 at the midpoint, up 5.8%

• Operating margin: -2.4%, compared to -19% in the same quarter last year

• Free cash flow margin: 23.2%, compared to 12.1% in the previous quarter

• Market capitalization: $13.73 billion

Founded in the wake of the 2009 financial crisis, Okta (NASDAQ:OKTA) is a cloud-based software-as-a-service platform that helps companies manage the identities of their employees and customers.

As software penetrates the business world, employees are using more apps every day, on more devices and in more locations. This drives the need for identity and access management software that helps companies efficiently manage who has access to what, and ensure access rights are safe from cybercriminals.

A company’s long-term performance is an indicator of its overall quality. While any company can experience short-term success, the best performers can experience sustained growth for years to come. Over the past three years, Okta has grown its revenue at an impressive annual growth rate of 30%. The growth outpaced the average software company and shows that its offering is resonating with customers.

This quarter, Okta reported year-over-year revenue growth of 13.9%, and revenue of $665 million beat Wall Street estimates by 2.4%. The company’s management is currently targeting a 10.4% year-over-year revenue increase in the next quarter.

Looking further ahead, sell-side analysts expect revenue to grow by 7.7% over the next twelve months, a slowdown from the past three years. This projection is disappointing and suggests that demand for the products and services will face some headwinds.

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Customer acquisition cost payback period (CAC) measures the months it takes a company to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a company can break even on its sales and marketing investments.

It’s relatively expensive for Okta to acquire new customers, as its CAC payback period was 53.5 months this quarter. The company’s inefficiency indicates that it operates in a competitive market and needs to continue investing to grow.

It was great to see Okta raise its full-year earnings per share expectations and beat analyst full-year revenue expectations. We were also pleased that revenue and earnings per share this quarter came in well above Wall Street estimates. Zooming out, we think this was a solid beat-and-raise quarter. The stock rose 19.7% to $97.86 immediately after the report.

Okta has posted rock-solid earnings numbers, but a quarter doesn’t necessarily mean the stock is a buy. Let’s see if this is a good investment. The last quarter does matter, but not nearly as much as the fundamentals and longer-term valuation when deciding whether the stock is a buy. We cover that in our useful full research report which you can read here. It’s free.