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Okta (OKTA) to Report Q3 Earnings: What's in the Cards?

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Okta (OKTA - Free Report) is set to release third-quarter fiscal 2019 results on Dec 5.

In the last reported quarter, Okta reported loss of 15 cents per share that was narrower than the Zacks Consensus Estimate of a loss of 20 cents and remained unchanged on a year-over-year basis.

Revenues of $94.6 million also topped the consensus mark of $85 million and surged almost 57% on a year-over-year basis.

For third-quarter fiscal 2019, revenues are expected between $96 million and $97 million, up 43-45% year over year. Non-GAAP net loss is anticipated between 12 cents and 11 cents per share.

The Zacks Consensus Estimate for revenues and loss per share is at $96.8 billion and 11 cents, respectively. While revenues are expected to grow 41.9%, loss is likely to narrow down from 19 cents in the year-ago quarter.
 

Okta, Inc. Price and EPS Surprise

Okta, Inc. Price and EPS Surprise | Okta, Inc. Quote

 

Let’s see how things are shaping up for this announcement.

Factors to Watch Out

Okta is expected to benefit from the ongoing transition to cloud and increasing concern over cybersecurity threats. The growing proliferation of hybrid cloud model is a major growth driver.

Okta Identity Cloud’s capability to consolidate all of the customers' applications to a single-identity service without sacrificing security or stability is attracting customers. The workflow level integration and cross platform functionality smoothens customers’ journey to cloud. The company’s ability to offer single platform to solve identity challenges in different use cases is a key catalyst.

Moreover, the company’s innovative product portfolio is helping it expand customer base. The company’s API access management, lifecycle management and mobility management solutions have gained significant traction.

For instance, in the last-reported quarter, Cisco’s (CSCO - Free Report) division Meraki and IT service provider NTT Data services selected Okta SSO Universal Directory, Multi-Factor Authentication (MFA) and Lifecycle Management solutions.

Notably, the total number of customers at the end of the second quarter was more than 5,150. While Okta added 450 new customers, dollar-based net retention rate was 121%, reflecting strong up-sell among existing customers. We expect the momentum to continue in the to-be-reported quarter.

Moreover, Okta’s expanding partner base is a major growth driver. In September, Okta and Yubico announced a new initiative to provide free YubiKey Starter Pack to every Okta customer that uses Okta MFA. The solution will help prevent credential compromises that account for more than 80% of data breaches.

However, increased rate of hiring can negatively impact profitability. Higher capital expenditure related to Okta’s headquarter office expansion is likely to hurt free cash flow.  

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Okta has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

Here are couple of stocks you may also want to consider as our model shows that these have the right combination of elements to post an earnings beat.

lululemon athletica inc. (LULU - Free Report) has an Earnings ESP of +1.87% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Casey's General Stores (CASY - Free Report) has an Earnings ESP of +6.17% and a Zacks Rank #2.

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