Okta stock falls as CEO says ‘short-term challenges’ lead to workers leaving at a higher rate

Shares of Okta Inc. fell. In extended trading Wednesday after executives revealed that the software company is facing problems stemming from the integration of its $6.5 billion acquisition of Auth0.

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Executives raised their annual earnings forecast again on Wednesday, but kept their full-year revenue target the same. “There are some short-term challenges,” Todd McKinnon, CEO and co-founder of Okta, told MarketWatch in an interview after the findings were released.

“A lot of things are going well,” he said, “but the results have been mixed.”

One challenge was the struggle to bring together Okta’s sales team and salespeople acquired in May 2021 to acquire the identity platform Auth0 (pronounced “Auth Zero”), which is more focused on direct-to-user sales than Okta’s focus.

Those challenges appear to have speeded up the revolving door at Okta, which makes software that helps authorized employees access applications on their corporate networks. McKinnon said on a conference call that attrition rates are currently about 20% higher than normal, compared to the usual 15%, and that if he had had to reintegrate, he would have been more moderate and less aggressive in growth.

On the call, McKinnon stressed to investors that the various sales organizations had only been merging for six months, and that these challenges had been factored into the outlook.

“To help put this in context, more than half of the adverse forecasts relate to our sales integration challenges,” Okta chief financial officer Brett Teggi said on the call. “A minor part of the reduction relates to increased attrition, which resulted in less capacity building than expected as we progress through the year.”

Tigi also acknowledged that the problems could affect the long-term outlook.

“Given our near-term outlook along with uncertainties in the evolving macro environment, we are reassessing our targets for fiscal year 2026 at this time,” Tigi said.

Okta shares fell about 12% in after-hours after results were announced on Wednesday, after closing 0.3% higher at $91.40. The stock is down 59.2% so far this year, as is the S&P 500 SPX,
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Okta reported a second-quarter loss of $210.5 million, or $1.34 per share, compared to a loss of $276.7 million, or $1.83 per share, in the same period last year. After adjusting for share-based compensation expense and other items, the loss came to 10 cents per share, compared to a loss of 11 cents per share in the same period last year. Revenue rose to $451.8 million from $315.5 million in the first quarter of last year.

Analysts expected an adjusted loss of 31 cents per share on revenue of $430.7 million, based on the company’s forecast of a loss of 31 cents to 32 cents per share on revenue of between $428 million and $430 million.

Okta executives maintained their revenue forecast for the year at $1.81 billion to $1.82 billion, while lowering their forecast for adjusted losses to the 70-cent range to 73 cents a share, compared to a previous forecast of an adjusted annual loss of $1.11 to $1.14. Share. Analysts polled by FactSet expected an adjusted loss of $1.11 per share on revenue of $1.82 billion.

For the third quarter, Okta executives were guided by an adjusted net loss of 24 to 25 cents per share on sales of $463 million to $465 million. Analysts, on average, expected an adjusted loss of 28 cents a share on sales of $464 million, according to FactSet.

In the interview on Wednesday, Okta leaders also discussed an ongoing hack called “Oktapus” in which hackers used a Twilio Inc. TWLO,
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To intercept Okta one-time passwords used for multi-factor authentication. It comes on the heels of an unrelated hack that Okta discovered in January that the company had taken until March to be deemed “immaterial”.

“The important thing is that there is no delay this time,” McKinnon told MarketWatch. “They used the Okta login page as a phishing target. We are the pioneers in this industry so people will try to deceive the leader.”

“The thing that made this look unique was that it was more functional than it usually is,” McKinnon said. “The short answer is, it worked.”

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