Okta Inc. today reported strong revenue and profit growth in its first fiscal quarter, highlighted by a 52% increase in its subscription backlog, but the identity and access management company issued mixed guidance for the second quarter and full year.

Revenue for both is expected to come in ahead of estimates but forecast earnings-per-share is below consensus. The stock dropped nearly 4% in after-hours trading.

Chief Operating Officer Frederic Kerrest (pictured) blamed the lack of visibility on Okta’s acquisition of rival Auth0 Inc. in a deal that closed less than four weeks ago. Auth0 “was a pre-[initial public offering] high-growth company that was investing heavily into their business,” he said.

Auth0’s losses will continue to drag on the combined companies’ earnings for the next couple of quarters, he said, but the short-term impact is outweighed by the $30 billion market additional opportunity Okta executives said Auth0 brings to the table.

For the quarter, Okta’s revenue rose 37% from a year ago, to $251 million, well ahead of analysts’ consensus estimate of $239.2 million. Subscriptions, which comprise 96% of sales, grew 38%. The subscription backlog of $1.89 billion grew 52%, while contracted subscription revenue that’s expected to be recognized over the next 12 months jumped 45%, to $899 million.

The operating loss of $16 million grew from $12 million a year earlier and the net loss nearly doubled, to $13 million, though the loss per share of 10 cents was significantly better than analyst consensus estimates of a 20-cent loss.

However, Okta’s guidance for the upcoming quarter and full year disappointed some investors. The company said its second-quarter loss per share is expected to be at least 35 cents, well below Wall Street’s estimate of 11 cents. The full-year loss per share was forecast to be at least $1.13 a share, compared with a consensus estimate of a 44-cent loss.

$4B by 2025

As if anticipating some disappointment with the growing losses, executives forecast that annual revenues will more than triple, to $4 billion, by the end of its fourth fiscal quarter in March 2025. That assumes 35% annual growth for the next four years with a free cash flow margin of 26%.

“This is a growth story,” Kerrest said. “It’s an $80 billion total accessible market. I feel good about our $1 billion run rate but when I look at the total opportunity it looks quaint.”

With the ink barely dry on the closing of the Auth0 deal, executives devoted much of the analysts’ call to explaining why the combined companies are greater than the sum of the parts. “There’s less customer overlap than even we expected,” said Chief Executive Todd McKinnon. “There is more opportunity to cross-sell and upsell than we expected.”

Kerrest said now that both companies have had a chance to examine each other’s books and customer lists. “We’re even more excited than we were before,” he said. “We thought there’d be a lot of goodwill and it’s been better than we expected.”

Executives emphasized that although Okta and Auth0 are technically competitors, they court different audiences, with Okta appealing to business users with its low-code approach and Auth0 seeking developers who might otherwise code their own identity management software.

It also helps that Auth0 derives nearly half its revenues from outside the U.S., where Okta wants to grow, said Auth0 CEO Eugenio Pace. The combined companies also believe that significant competition is unlikely to emerge in the future since all the major software companies have already announced their own offerings in the market.

Still, at least one analyst firm was perplexed that Okta didn’t provide more detail about Auth0’s revenue contribution. “Management surprisingly declined to provide the expected financial contribution from Auth0,” wrote Mizuho Securities USA LLC analysts in a brief to clients. However, they noted, “We continue to believe that Okta’s technological and go-to-market advantages versus most peers are significant.”

Executives said their principal competition continues to be homegrown solutions, which are becoming less viable as cybercriminals step up their game. “Some of the pushback we saw in the past has gone away because of the realization that the benefit of adding a little more effort to your home-built system is going away,” Pace said.

As further evidence that the wind is at Okta’s back, Kerrest cited President Joseph Biden’s executive order two weeks ago that creates a baseline set of security standards for U.S. government agencies. Okta has been a certified vendor in the Federal Risk and Authorization Management Program for more than four years.

“The order specifically states that government agencies must advance to zero trust and adopt multi-factor authentication from an approved vendor,” he said. “It’s been a good vertical for us, and it’s a great long-term play.”

Photo: Okta/Facebook