What Is Okta’s Inorganic Growth Narrative?

According to a Market Research Engine report published earlier this week, the global Identity and Access Management is estimated to grow 12% annually over the next few years to become a $14 billion industry by 2023. Recently reported results of the Billion Dollar Unicorn Okta (Nasdaq:OKTA) corroborate this rapid growth.

Okta’s Financials

Okta’s identity management solution simplifies the identity access management services for organizations by removing duplicative credentials and disparate authentication policies. Its fourth quarter revenues grew 59% over the year to $77.8 million driven by a 64% growth in subscription revenues to $72 million. For the quarter, GAAP net loss was $24.7 million, compared with $18.2 million a year ago. Non-GAAP net loss was $10.1 million or $0.10 per share, compared with $12.9 million or $0.66 per share a year ago. The market was looking for revenues of $74.4 million and an adjusted net loss of $0.14 per share.

It ended the year with revenues growing 62% to $260 million driven by a 67% increase in subscription revenues.

For the current quarter, Okta forecast revenues of $78-$79 million and a net loss of $0.15-$0.16 per share. The market was looking for revenues of $75.2 million and net loss of $0.21 per share. The company expects to end the year with $343-$348 million in revenues and non-GAAP net loss per share of $0.62-$0.67. The forecast was better than the Street’s estimated revenues of $343.9 million and a net loss of $0.75 per share.

Okta’s Rising Competition

Okta continued to expand its market share through several tie-ups and product upgrades. It recently announced a partnership with SailPoint to provide end-to-end identity for organizations. The partnership will help provide a solution that could offer security requirements that are both simple and secure while ensuring that they meet complex compliance and security requirements. Together, their solutions will allow the ability to manage a user’s access throughout the lifecycle, including initial onboarding, secure single sign-on, multi-factor authentication for application access, and automated off-boarding as users change roles or leave an organization. This is not the first partnership that Okta has signed. It has a similar arrangement with Palo Alto Networks as well.

Okta needs tie-ups like these to help battle the growing competition from bigger names like Microsoft, IBM, and Amazon. Last year end, Amazon announced the availability of its single sign on (SSO) product as well. The AWS SSO is being offered for free to AWS customers. Okta’s biggest advantage lies in the fact that it has the capability to integrate with more than 5,000 corporate applications and that it works across multiple cloud vendors.

Questions for Okta’s Board

Okta realizes the importance of partnering with other players like SailPoint and Palo Alto Networks to keep the bigger players at bay. It also suggests opportunities for consolidation in the market. I would like to know what Okta has lined up for inorganic growth? What companies, if any, does it have on its radar to help it grow? And what is the narrative or the organizing principle for acquisitions?

Okta was venture funded till last year, when it went public at a valuation of $1.54 billion. Prior to the listing, it had raised $228 million from investors including Altimeter Capital, Janus Capital Group, Khosla Ventures, Greylock Partners, Andreessen Horowitz, Sequoia Capital, FLOODGATE, SV Angel, Maynard Webb, Dharmesh Shah, Stephen Marcus, Avid Larizadeh, Ed Roberts, Tom Berson, and Jacques & Sandra Kerrest. Its last round of funding had valued the company at $1.2 billion. Its stock is currently trading at $44.02 with a market capitalization of $4.61 billion. By all standards, a very successful post-IPO stock performance.

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