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Earnings Results: Okta CEO promises profit for all of next year — ‘The problem was never that we didn’t have talented sales people’

Okta Inc. executives on Tuesday said they will report an adjusted profit in the fourth quarter and, in a surprise, predicted profitability for all of next fiscal year, trumping profit concerns stemming from recent sales-operation issues.

For the fourth quarter, Okta
OKTA,
+4.04%

guided for adjusted earnings of 9 cents to 10 cents a share on revenue of $488 million to $490 million. Analysts, on average, were expecting an adjusted loss of 12 cents a share on sales of $488.3 million, according to FactSet.

In a surprise announcement during the conference call, Chief Financial Officer Brett Tighe revealed a full forecast for fiscal 2024 as well, as most software companies shy away from such practice amid uncertainty about macroeconomic conditions. He said Okta executives are aiming for adjusted profits for the full year on revenue of $2.13 billion to $2.15 billion. Analysts on average expected adjusted losses of 30 cents a share on sales of $2.3 billion, beating profit projections widely but also missing sales expectations by more than $100 million.

Shares rallied as much as 18% in after-hours trading immediately following the release of the results, but those gains noticeably pared back to a steady 12% level after Tighe announced the outlook to analysts on the conference call following the earnings announcement. They have fallen 76% so far this year, compared with a 27% decline on the tech-heavy Nasdaq Composite Index
COMP,
+4.41%
.

In an exclusive interview with MarketWatch ahead of the company’s conference call, Okta Chief Executive and co-founder Todd McKinnon said sales-rep attrition has been the lowest it has been in the last several quarters, following a spike last quarter. Okta also announced that Susan St. Ledger, the president of worldwide field operations, is retiring and McKinnon will take over her duties on an interim basis.

“What we’ve done over the last six months is what a lot of companies are doing is slowing hiring, re-evaluating, real estate, doubling down on the things we know are high value, and some of the things that are maybe less value we’re doing less of, so that’s where we see the profitability come from,” McKinnon told MarketWatch.

Much of that comes from addressing the company’s struggle in combining Okta’s sales force with sales reps acquired in the May 2021 acquisition of identity-platform Auth0 (pronounced “Auth Zero”), which is more focused on direct-to-user sales than Okta’s corporate focus.

“The problem was never that we didn’t have talented sales people,” McKinnon told MarketWatch. “The problem is that we didn’t enable them and clarify things with them.”

In-depth: Okta CEO says ‘short-term challenges’ resulted in workers leaving at a higher rate

“We still have work to do,” McKinnon said. “We don’t think we’ve solved it after one quarter of a positive trend but I do think it’s progress.”

“The biggest factor we’ve really done a much better job clarifying the products and the positioning and saying we have two clouds: We have Workforce Identity Cloud and Customer Identity Cloud and it’s very clear what to sell when,” he said.

Okta reported a third-quarter loss of $208.9 million, or $1.32 a share, compared with a loss of $221.3 million, or $1.44 a share, in the year-ago period. After adjusting for stock-based compensation expenses and other items, the company reported break-even results on a per-share basis, compared with a loss of 7 cents a share in the year-ago period. Revenue rose to $481.4 million from $350.7 million in the year-ago quarter.

Analysts had forecast an adjusted loss of 24 cents a share on revenue of $465.4 million, based on the company’s forecast for a loss of 24 cents to 25 cents a share on sales of $463 million to $465 million.

For the current year, Okta forecast an adjusted loss of 27 cents to 26 cents a share on revenue of about $1.84 billion, compared with the Street’s forecast of 73 cents a share on revenue of $1.82 billion.

So far in November, cloud software stocks have been getting trashed. While the S&P 500
SPX,
+3.09%

has gained 5.4%, and the Nasdaq has advanced 4.4%, the iShares Expanded Tech-Software Sector ETF
IGV,
+4.39%

has risen 1.6%, the Global X Cloud Computing ETF
CLOU,
+6.00%

has ticked up 0.8%, the First Trust Cloud Computing ETF
SKYY,
+4.54%

has fallen 2%, and the WisdomTree Cloud Computing Fund
WCLD,
+4.99%

has dropped 6.9%.

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