Okta Inc. Chief Executive Officer Todd McKinnon said a new focus on efficiency is paying off for a company that long prioritized growth over profit.
(Bloomberg) — Okta Inc. Chief Executive Officer Todd McKinnon said a new focus on efficiency is paying off for a company that long prioritized growth over profit.
The 14-year-old software maker, known for authentication services, is a poster child of how the toughening tech market is forcing companies to tighten their belts. Okta shares crashed 70% in 2022 as interest rates rose and investors lost their patience after years of losses.
“The world has changed a lot,” McKinnon said in an interview Thursday morning in New York. “For us, it really started from the financial side and the stock market.”
Okta responded to the pressure by paring back spending — particularly in sales, marketing and speculative research projects — he said. The company is also investing in automating more internal processes such as customer billing to save money over time, he added.
Now, analysts forecast Okta to report adjusted profit for the coming period after years of mostly money-losing quarters. And its shares are up 24% this year, bolstered by better-than-expected results earlier this month. That gain has far outpaced the performance of the S&P 500 Index.
After Okta’s last quarterly report on March 1, Piper Sandler analyst Rob Owens wrote that “the narrative of profitable growth rang loudly.” Still, the company continues to grapple with a broader slowdown in the software industry. It reported seeing the kind of tepid buying behavior, such as requesting shorter contracts, that has plagued tech companies since last summer. Okta expects sales to grow as much as 17% in fiscal 2024, a deceleration from 43% the previous year.
Part of its refocusing was a 5% headcount reduction announced last month during a blitz of tech layoffs. The most visible impact of the cuts was a reduction in sales and marketing, McKinnon said. The San Francisco-based company’s employee count had roughly tripled since July 2020 to about 6,000 workers.
McKinnon said he’s comfortable with the current financial plan, which doesn’t include more reductions, but added that “it’s a dynamic world and things could change.” The outlook already assumes the economic environment will get worse before it gets better, he said.
Okta is focused on expanding into authentication services for consumers, rather than just employees. The company is aiming for this segment to contribute half of revenue, up from about 40% now, McKinnon said. This initiative was fueled by the $6.5 billion acquisition of Auth0 in 2021. And salespeople have been getting better at cross-selling the services, McKinnon said.
Between ongoing uncertainty in the tech market and unexpected shocks like the Silicon Valley Bank collapse, “these are pretty volatile times,” McKinnon said. Still, he’s optimistic about the company’s new trajectory. “It’s gonna be satisfying that to say that we got through it and were successful.”
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