TSP Weekly Tech Stock Update—May 4, 2024
This Week: Apple shares rally, Atlassian Investor Day, AWS accelerates growth, Morgan Stanley bullish on Palo Alto, Okta after the breach, CRWD partners with AMZN, MongoDB debuts new products & more.
Hello from Rob…
It has been six months since Okta (OKTA, $96.55) suffered its major security incident in which hackers gained access to the company’s support case management system. The hack caused Okta shares in early November to trade down to a new 52-week low of $65.04.
Since then, Okta has taken a number of steps to enhance the security of its help center. It changed how and when access is fully provisioned to customer administrators as well as the system’s data retention policy. Okta hardened its corporate infrastructure and now requires multi-factor authentication (MFA) for protected actions in the admin console. Admin roles now need to be requested, approved and assigned only to authorized users for specific periods of time.
Heading into Okta’s FQ4 (Jan.) earnings report in late February, investors were worried that the first full quarter after the security breach would show at least some deterioration in the business.
But surprisingly, Okta reported solid results, with total revenue rising 19% to $605 million, coming in 3% above the consensus estimate of $587.5 million. The company even signed a record number of large contracts with $1 million+ in annual recurring revenue (ARR).
In reaction, Okta shares surged 22.9% in one session following the FQ4 report and went on to reach a new 52-week high of $114.50 in early March.
In FQ4, Okta’s total customer count rose 8% to 18,950, while the number of large customers with annual contract value (ACV) of more than $100,000 gained 14% to 4,485. This large customer cohort represents more than 80% of Okta’s total ACV. Total RPO of $3.385 billion rose 13%, with growth accelerating from +8% in the prior quarter because Okta is signing more large, long-term deals. Current RPO of $1.952 billion gained 16%, matching the growth rate from FQ3.
On the FQ4 earnings call, Okta CFO Brett Tighe said the latest numbers showed that the security incident had “minimal impact” on the company’s financial results. Okta experienced a strong cross-sell motion in the quarter and saw average contract duration hit a two-year high due to larger customers signing extended contracts. The new business pipeline entering FY’25 (Jan.) was actually stronger than the pipe going into FY’24, according to Okta CEO Todd McKinnon.
Okta will report FQ1 (April) results on May 29. The company’s FQ1 total revenue guidance of $603 million to $605 million (growth of 16% to 17%) came in above the consensus of $584.9 million. The company sees FQ1 current RPO of around $1.9175 billion (growth of 13%).
The only real sign of a fallout from the security breach was Okta’s conservative FY’25 total revenue outlook of $2.495 billion to $2.505 billion, indicating modest growth of 10% to 11%. This suggests Okta over the coming quarters may face some pressure on renewals because of the breach. However, if there isn’t much backlash when it comes to renewals, Okta’s FY’25 top-line outlook could prove to be overly conservative.
*Inside This Issue: Looking Ahead To Apple WWDC24
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