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Unpacking Okta’s New SaaS Multiples Post-Earnings

Morning Report: Let’s take a look at yet another public SaaS company’s earnings and figure out what it can tell us about startup valuations.

Okta reported its fourth-quarter earnings March 7th (FQ4’18). It pulled in revenue of $77.8 million, up 59 percent year-over-year, a GAAP loss of $24.7 million, a non-GAAP loss of $10.1 million, and positive net cash flow from operations of $0.2 million.

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As you might expect in a SaaS business, Okta’s revenue is largely recurring. $72.0 million of its $77.8 million in revenue during the quarter was subscription. That’s about 93 percent.

Shares of Okta are up today after its results beat both on profit metrics (lower-than-anticipated adjusted per-share loss) and revenue growth (exceeded by $3.9 million).

What the situation does is let us pick out a few metrics from the company’s performance and generate a new set of revenue multiples. We traditionally do this for Box. However, adding Okta into our regular mix of benchmarks seems like a good idea—especially as Box decelerates.

So here’s the rundown:

  • Okta FQ4 revenue: $77.8 million.
  • Okta approximate ARR: $311.2 million.
  • Okta F2018 revenue: $260.0 million.
  • Okta valuation: $4.26 billion (Yahoo Finance, as of the time of writing).
  • ARR multiple: 13.7x.
  • Trailing revenue multiple: 16.4.

Holy hell, you are probably thinking, those multiples are bonkers. To some extent, those multiples are bonkers. But Okta grew 62 percent last year, including 67 percent growth in its subscription revenue base. Those are good growth figures for a company that just posted positive operating cash flow (especially in SaaS).

But what’s odd about the Okta picture is that its guidance is only so aggressive. The company, according to its own notes, expects F2019 revenue of $343 to $348 million, up just 33 to 35 percent from its F2018 result. That’s a pretty dramatic growth deceleration on a percentage basis. What’s even odder is that the street expects the same, anticipating F2019 revenue of $343 million according to Yahoo Finance.

So Okta is richly valued today and very richly valued compared to Box’s post-earnings 4.8x ARR multiple and 5.2x trailing revenue multiple, obviously. But both the company and its observers expect dramatically slower growth.

And yet its stock is up today. If you can square that circle, call us, but today there’s a least one SaaS company out there in the public markets putting up 2014 multiples.

That’s notable.

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