Okta Breezes by Our Lofty Expectations for Q1

We are maintaining our $280 fair value estimate for narrow-moat Okta (OKTA) after its first-quarter revenue growth and adjusted earnings easily surpassed our lofty expectations. Even with shares jumping more than 15% after strong results, we still see shares appreciably undervalued. We think Okta’s position as a leader within the identity and access management cybersecurity market provide it with an enviable position as organizations increasingly use identity-based measures as their first line of defense in a world that no longer has defined security perimeters. Additionally, we believe Okta is only in the early stages of establishing an especially sticky identity platform that consolidates various security and user enablement functions from a sole vendor.

First-quarter revenue increased 65% year over year (standalone Okta up 39%) as subscriptions grew by 66% and professional services expanded by 55%. Remaining performance obligations, or RPO, grew by 43% and current RPO increased by 57%, both year over year. We think the RPO metrics provide solid insight into demand strength for Okta. Dollar-based net retention was 123% in the quarter, which we believe shows Okta’s platform approach resonating with clients, and firms continuing to consolidate spending to Okta. Okta ended the quarter with 15,800 customers, up 48% year over year, and we expect strong customer additions to continue as organizations upgrade to modern, cloud-based approaches for workforce identity and pivot toward purchasing customer identity versus building solutions internally. Customers with at least $100,000 in annualized contract value increased by 59% to 3,305, which we believe shows existing and new customers increasingly placing more trust in Okta’s ecosystem. With all these factors combined, we think Okta has created a durable advantage within the identity and access market and its technological disruption is just ramping up.