Formerly hallowed now decaying in Silicon Valley, the ‘growth at all costs’ adage crushes Okta: Stock crashes 80% from peak

Huge losses, but now revenue growth is slowing. Hilariously, executives refer to huge losses as “profitability.”

By Wolf Richter for WOLF STREET.

Okta was founded in 2009, went public in April 2017, and is no longer a fledgling startup. But last night it announced another huge net loss for its second quarter ended July 31, of $210 million, on revenue of $452 million. Its losses have increased every year since it began disclosing them seven years ago and now total more than $2 billion.

But since the infamous February 2021, when the hype-and-hoopla show took off, these types of stocks started to take a dip, and I started tracking them in my Implosed Stocks column. Today, Okta joined the club which already has hundreds of members. And he did it brilliantly. His actions [OKTA] kathoomphed 35% so far today, down to around $59 now, where they were first seen in August 2018, and down 80% from the peak in – you guessed it – February 2021 (data via YCharts):

Okta, which sells enterprise services that give their employees secure access to cloud-based enterprise systems, has followed the Silicon Valley dictum of using investor money to buy business growth. revenues – 42% revenue growth in the second quarter – regardless of the costs, because the share price will continue to rise if revenues increase, regardless of the net losses, because investors confused by growth will ignore the net losses and will focus on some house metrics and revenue growth, as the saying goes.

This once-sacred, now rotten business model has worked for years: Okta shares soared from its IPO price of $17 to its first-day close of $23.51, for a 38% pop. on day one and then climbed from there to eventually hit $294 intraday. on February 12, 2021, before it all fell apart. And so far, he’s generated over $2 billion in net losses doing just that, with no end in sight.

Today’s tumble in the stock – just the latest in the 16-month implosion – apparently happened because the company lowered its billing and revenue forecast for the rest of the year. the year.

During the earnings call (transcript via Seeking Alpha), executives attributed the lower guidance primarily to “sales challenges,” “integration challenges,” and “sales attrition” related to Auth0. , which Okta had agreed to acquire on March 3, 2021, during peak hype, for $6.5 billion in stock.

The acquisition was just another way Okta tried to buy revenue growth. And now the case is not going very well.

CEO Todd McKinnon blamed “the challenges of integrating the Auth0 and Okta sales organizations” in part for the reduced forecast. “I recognize that we still have work to do to regain our momentum. We have taken decisive action which we believe will put us back on track,” he said.

Chief Financial Officer Brett Tighe blamed the reduction in guidance on “sales integration challenges” and “increased sales attrition, which resulted in weaker-than-expected capacity building during the year”, and added that “a smaller part” of the blame for the downgraded outlook is “related to the macro environment.”

And as you’d expect when an earnings call takes place while the action is in full swing in the background, there was plenty of linguistic hilarity, including about the huge net losses.

No one on the earnings call — especially analysts — made a fuss about the quarter’s net loss or prior net losses. On the contrary, CEO Todd McKinnon said: “We produced better than expected profitability” – the term “profitability” having replaced the unpleasant term “net loss” – and analysts ran with it.

Other executives have talked about “improving our profitability outlook” etc etc etc meaning they want to reduce net losses from huge and growing to hopefully slightly less huge and falling.

Alas, for the first and second quarters of fiscal 2023 the company lost $453 million, a 17% greater net loss, I mean greater profitability or whatever, than in the same period in 2021. His net losses, I mean profitability or whatever, have increased every year since he started disclosing them, with fiscal year 2016 (ending Jan. 31, 2016) now totaling over $2 billion, including including $848 million from last year and $453 million from the first half of this year (fiscal 2023):

Trying to rein in those losses, now in this new environment, means layoffs. Okta started the process, as did many other companies on my Implosed Stocks list. But as with the other inhabitants of this list, the scale of the layoffs is still miniscule.

Last week, Okta’s head of global sourcing, Jody Simon, announced on LinkedIn that “Okta’s entire US sourcing team has been eliminated.” Later, Okta confirmed that 24 people had been laid off, about 0.4% of its total global workforce. So it won’t cut costs much, but it does show that they are now dealing with the end of an era.

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