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Okta stock dips lower despite earnings beat

Yahoo Finance Live anchors discuss second-quarter earnings for Okta.

Video Transcript

BRIAN SOZZI: We're still a few minutes away from the opening bell. Let's check in on what's moving from the Yahoo Finance trending ticker page. Shares of Okta are getting hammered despite beating on earnings estimates for the second quarter. This company noted unexpected problems with integrating the identity software company Auth0, notably blending their sales team with the core Okta sales staff.

And Brad, Okta is getting zero, zero love here in the early going. Hottest ticker on our page. And I'm looking at a good note from again, the folks over at Citi saying this was an anemic quarter and calling out a slowdown in remaining performance obligations. So just a forward-looking business indicator for them. That growth decelerated to 25%, Citi noting the nine-quarter average has been 52%, so not that great.

BRAD SMITH: Yeah, it's really interesting when you're on the earnings call and you hear them highlight the importance of the remaining performance obligations and try to shift so much of the analyst and investor attention towards that. But since they've done so, we'll just kind of reiterate what they're saying and what they're trying to draw attention to here.

Because they view that as this better metric to really look across some of their quarterly performance, understanding better where they've got some of the backlogs, where they're working through that, and some of their invoice timing and duration. So their calculated billings and current calculated billings as well, that grew 36%. And that's some of the metrics that they're going to continue to look through, at least in this near point in time.

Current RPO, bringing this full circle, they expect to recognize over the next 12 months, it grow 36% to $1.5 billion here. But it's ultimately how you can continue to work through those billings also in some of the performance objectives that you've got.

BRIAN SOZZI: It's also this issue with the sales team. First, the outside of that, they did note a little more a softening in the environment with enterprise customers. So we heard that from Salesforce, we heard it from a lot of other players in that space. But this integration with Auth0, this is they paid 6 and 1/2 billion for this business in middle of 2021. And it might take a while.

It just speaks to the bigger thing. When you acquire business for billions of dollars, do you have the cultures right? Are the processes similar? And if not, what is the timeline to integrate teams and ultimately drive successful outcomes? Just judging by the call, it looks like they've seen people leave the Okta organization after this deal. So it's going to take it a while to get new talent and then figure out a more just streamlined approach to selling stuff.

BRAD SMITH: That's an operational expense as well. That is an administrative, and when you think about some of the costs for even that type of churn that you would have, especially within a sales team too and at a time where anybody who you bring in, they're going to be demanding some of the higher wages as well because they know what the environment is.

They know also how they need to factor into some of their real wages where they're seeing other parts of their life also become more costly and more expensive and also look at the market rate that has elevated perhaps since even the people that are outgoing at Okta were able to take on some of those positions. So all of that considered, we should see and could see some of their operational expenses go up on the headcount front.

BRIAN SOZZI: This is reminding me of the situation with the sales team to rewatch "Glengarry Glen Ross," great salesman movie. Loved that movie. Got a set a steak knives for you, my friends, steak knives.

BRAD SMITH: Yeah, indeed.