Companies are being careful with software spending, Okta CEO says
Okta (
OKTA
) co-founder and CEO
Todd McKinnon
says macroeconomic uncertainty has weighed on the demand for software throughout 2024.
“What’s different is that companies are being careful with their money. They’re rationalizing the technology they purchased over the last four or five years. They’re making sure that they’re getting real return on investment out of all the solutions,” McKinnon told Yahoo Finance at the Goldman Sachs Communacopia and Technology Conference on Tuesday.
Added McKinnon, “So it does take longer sometimes to justify what they’re investing in, but we’re very confident in our ability to do that over time, and that’s what we’re focused on.”
Okta’s stock was hit hard following its Aug. 28 second quarter earnings release, dropping 18%.
On the surface, the company delivered strong results for investors.
Revenue grew 16% from the prior year to $646 million, ahead of estimates for $635 million. Adjusted earnings clocked in at $0.72 a share, beating estimates of $0.61. The company achieved profitability on a GAAP basis for the first time.
But the company displayed a more muted spending backdrop — highlighted by greater challenges in gaining new business — in its guidance.
For the third quarter, Okta sees adjusted earnings per share in a range of $0.57 to $0.58. Analysts had expected $0.59.
“Execution is relatively healthy but we’re still waiting for recovery,” JPMorgan analyst Brian Essex said in a client note.
Essex rates Okta shares at a Neutral, the equivalent of Hold.
McKinnon said he and his team are very focused on improving growth into year-end and in 2025, mainly through new product releases around AI.
“Our growth has, like a lot of companies, … decelerated over the last year or so,” McKinnon said. “So we’re doubling down on product innovation. We’ve recently made generally available great products like identity threat protection with Okta AI, identity security, and highly regulated identity.”
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