It has been a great year so far for shareholders of Okta (NASDAQ: OKTA), the digital identity and security specialist that's trounced the market in 2019. Despite prospects for continued net losses from the software company, investors are salivating at the potential for market-thumping sales growth as Okta capitalizes on its prime position in an attractive industry niche.
To that end, the company is aiming to bulk up its customer Rolodex in 2019, particularly by adding more clients that rank among the biggest businesses on the planet. Its earnings report on Thursday, May 30 should show progress on that score while adding clarity for investors as to when they might expect Okta to start generating sustainable profits.
Let's take a closer look.
Fiscal 2018 was characterized by head-turning growth as sales soared nearly 60%, capped by a surprising 50% spike in the fourth quarter. Most investors who follow the stock are expecting the good times to continue, with revenue improving 40% this quarter to $117 million. That outlook matches with the forecast issued by Okta's management team that calls for between $116 million and $117 million of revenue in the period.
Actual results might differ from that projection, especially since the revenue base is tilting further toward high-value clients who spend $100,000 or more each year on Okta's suite of identity and security services. Last quarter's strong result was in part delivered by a single massive contract, which is a reminder that the timing of these big orders is likely to cause volatility around sales trends.
In any case, investors will be looking for signs that Okta's software is continuing to penetrate deeper into the market across both large and small enterprises. Solid subscription revenue, a quickly rising customer base, and strong billings growth would all support that bullish reading.
Okta hasn't booked a profit in any of the past five fiscal years. Net losses ballooned to $125 million last year, in fact, from $110 million a year earlier.
Yet investors can see signs of strengthening finances by looking beyond the headline income number that today is being held back by spending in areas like R&D, marketing, and sales. Okta's gross profit margin hit a record 72% last year as non-GAAP operating loss improved to 10% from 24%. The company reached positive operating cash flow, too.
That cash position should only improve with time as Okta collects the proceeds from its growing base of recurring revenue contracts, but net losses are still likely this quarter and for the wider 2019 year.
Okta will issue forecasts for the second quarter while updating its outlook for the full year to incorporate the latest demand trends. Right now, most investors who follow the stock are looking for sales gains to slow slightly to around 35% in Q2 while landing at around 34% for 2019. Okta's recent sales experiences, especially with respect to large customers, could inform a shift in that outlook on Thursday.
Given the stock's rally lately, investors might be disappointed by anything less than a confirmation or an upgrade to those growth predictions. Still, assuming no major demand shifts, Okta appears set to grow its customer base in 2019 while taking another big step toward sustainable profitability.
10 stocks we like better than OktaWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Okta wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019