According to a Grand View Research report published last year, the global identity and access management (IAM) market is estimated to grow 13% annually to $22.7 billion by the year 2025. The growth is expected to be driven by the rising adoption of cloud services and mobile devices and the continued need to drive compliance to manage insider threat. Billion Dollar Unicorn Okta (Nasdaq: OKTA) reported its third-quarter results last month that surpassed market expectations.

Okta’s Financials

Revenues for the quarter increased 58% to $105.7 million, ahead of the market’s forecast of $97 million. It ended the quarter with a non-GAAP net loss of $0.04 per share, compared with the Street’s forecast of a loss of $0.11 per share. This was also the first ever quarter that Okta reported a free-cash-flow-positive quarter with free cash flow of $1.4 million.

By segment, subscription services revenues increased 58% over the year to $97.7 million. Professional services and the other segment revenues grew 56% to $7.9 million.

During the quarter, Okta reported a 58% growth in calculated billings to $124 million. Trailing 12 months’ calculated billings grew 59% to $434 million. Its customer base increased 42% to 5,600 mainly across its enterprise customer base.

For the current quarter, Okta forecast revenues of $106-$107 million with a net loss of $0.08-$0.09 per share. The Street was looking for revenues of $99.9 million and a loss of $0.11 for the quarter. Okta expects to end the year with $391-$392 million in revenues and non-GAAP net loss per share of $0.36-$0.37. The Street was looking for revenues of $356.5 million and a net loss of $0.56 per share for the year.

Okta’s Growth Focus

Today, more and more organizations are shifting their business to the cloud and are trying to launch applications and services that can better engage with customers online – all while maintaining their high-security level. To cater to this demand, Okta is focused on three key offerings – Identity Cloud, Integration Network, and its security standard. Okta’s Identity Cloud service is offered as an independent platform. It is an integrated IAM service that offers its customers the flexibility to accommodate every type of user. Above all, the Identity Cloud can adapt to whatever technological investments the customer makes in the future, making it future-proof.

Its second area of focus is the Okta Integration Network that offers over 5,500 pre-built integrations to cloud and on-premise applications, to network security providers like Palo Alto Networks, to security analytics providers like Splunk, and to IT operations providers like ServiceNow. Its integrations are helping new customers deploy Okta in an accelerated manner.

Finally, Okta is able to serve as the identity standard for its customers because it offers a single identity platform for every type of user in an organization’s ecosystem. Organizations can offer a platform best suited for its employees, contractors, partners, and even their customers. The ability to manage and secure all identities in a consistent way from a single platform is a big attraction to its customers.

As a result of these focus areas, Okta was recently ranked by Forrester Research as a strong performer for its people, workforce security, vision and strategy, and market approach. Okta has grown recently through its product upgrades and acquisitions. Earlier this year, it had announced the acquisition of zero trust security firm ScaleFT. ScaleFT was founded in 2015 by Jason Luce and Paul Querna and provided an access management platform that enables secure remote access without a VPN. Prior to the acquisition, ScaleFT had only raised $2.8 million in a seed round funding. The IAM acquisition market was hot last year when KPMG acquired the largest independent IAM provider Cyberinc for an undisclosed sum. Last summer, Cisco also announced the acquisition of privately held Duo Security for $2.35 billion as it continued to expand its security assets.

I don’t believe Okta would be looking at acquisitions of such value for its next round of growth. Instead, it should probably evaluate some capital-efficient, bootstrapped niche startups that could offer it more value for the money. What suggestions do you have for Okta?

Its stock is currently trading at $72.44 with a market capitalization of $8 billion. It had touched a 52-week high of $75.49 in September last year. The stock was trading at a 52-week low of $26.20 nearly a year ago.

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