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Okta Is Starting to See COVID-19 Impacts

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Okta Is Starting to See COVID-19 Impacts
By: Motley Fool | April 2, 2020

• The enterprise identity management company expects some "near-term billings headwinds."

When enterprise identity provider Okta (NASDAQ:OKTA) reported fourth-quarter earnings last month, CFO Bill Losch noted on the conference call with analysts that "we have not experienced any impact to our demand related to the coronavirus and this is reflected in our guidance." That was nearly a month ago, and the coronavirus outbreak has rapidly evolved every day since.

Okta hosted two events this week: a virtual investor day and its Oktane20 conference. Ahead of those proceedings, the company also tweaked certain parts of its guidance and provided investors with some updates on how the COVID-19 pandemic is impacting its business.

Why Okta won't feel a revenue hit immediately
As a mission-critical enterprise software-as-a-service (SaaS) provider, Okta is less vulnerable to economic slowdowns than consumer discretionary or retail companies, which are getting decimated by lockdowns and social distancing.

That doesn't mean IT budgets are immune to recessions: Global IT spending is now expected to decline by 3.7% to 4.1% this year, according to the Enterprise Technology Research, which conducted a survey of roughly 1,300 chief information officers and tech execs around the world. At the beginning of the year, those decision makers had originally planned on increasing IT spending by around 4%.

There are various ways in which the crisis is affecting Okta. Generally speaking, subscription models provide much greater visibility because near-term revenue is already under contract and companies often collect cash up front (creating deferred revenue on the balance sheet). As a result, Okta is reaffirming its revenue forecasts for both the first quarter and full-year fiscal 2021. However, the company is starting to see some impact on billings, while generating cost savings in other parts of the business.

In a statement, Losch said:

We do, however, expect some near-term billings headwinds as customers adjust to the current business environment. Conversely, we expect our operating loss and loss per share to be better than expected as a result of reduced spend. This is primarily related to lower sales and marketing costs, driven in part by temporary travel restrictions, lower employee-related costs, and moving Oktane and other events to virtual formats.

Revenue in the first quarter is still expected to be in the range of $171 million to $173 million, with fiscal 2021 sales outlook also unchanged at $770 million to $780 million. Here's what changed in Okta's first-quarter guidance:

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