When Okta shares its latest results on Wednesday, investors will be hoping that the report doesn’t show a decline in customers, with a number of contracts coming up for renewal. Nutanix reports the same day, as it pulls in customers unhappy with the Broadcom–VMware merger.
The serious cyber breach experienced last October by Okta [OKTA], a provider of cloud-based identity and access management solutions, seems to be in the rear-view mirror.
In a blog post last November, the company acknowledged that the cyberattack had impacted all customer support users, having previously indicated that less than 1% of users were affected.
After engaging a leading cybersecurity forensics firm, a number of steps were taken to improve the security of Okta’s customer service help centre. “The incident is now behind us, but we’re using the learnings to reassess and strengthen the security aspects of our own infrastructure,” CEO Todd McKinnon said on the Q4 earnings call in February.
Okta’s subsequent response seems to have eased any fears investors may have had. The Okta share price is up 7.3% year-to-date as of 28 May and, having dropped to a 52-week low of $65.04 on 2 November, the stock hit a 52-week high of $114.50 on 8 March.
Institutional buyers seem to be positive on the stock. Stockcircle data shows that eight ‘super investors’ bought $204.2m worth of Okta shares in Q1, while three sold a combined $47.5m.
Okta’s Q4 Earnings Show Minimal Impact from Breach
When reporting its Q4 earnings, its first report following the breach, Okta wasn’t able to attribute a “quantifiable impact” to the incident, said Chief Financial Officer Brett Tighe. However, the numbers suggested that the impact was minimal.
Total revenue climbed 19% to $605m, while subscriptions revenue grew 20% to $591m. Operating cash flow was a record $174m and free cash flow was $166m.
The number of large contracts — those worth more than $1m — rose 30% to nearly 400 million in the three months to the end of January.
Okta ended Q4 with 18,950 customers, 8% more than the year prior; the number of large customers bringing in at least $100,000 was up 14% to 4,485. These large customers represent more than 80% of the total annual contract value.
Caution Remains as Contracts Come Up for Renewal
While Q4’s numbers were strong, investors will be paying close attention to the renewal numbers over the coming few quarters, as customers’ contracts draw to a close.
In light of this, Okta has guided towards revenue of approximately $2.5bn for fiscal 2025, for a modest growth rate of 11% at best.
As for Q1 earnings being reported on Wednesday, the outlook is for revenue to rise 16% or 17% to a range of $603–605m. The subscription backlog to be recognised over the next 12 months is seen as growing 13% to approximately $1.9bn.
Nutanix Boosted by Broadcom–VMware Merger
Cloud infrastructure provider Nutanix [NTNX] is another cloud stock reporting on Wednesday.
The company expects revenue for Q3 2024 to be in the range of $510–520m, up from $448.6m in Q3 2023. Annual contract value revenue should come in around $265–275m, up from $239.8m a year ago.
According to NAND Research Founder and Principal Analyst Steve McDowell, Nutanix has been benefitting from Broadcom’s [AVGO] $69bn buyout of VMware. Nutanix has been signing up customers that have decided to leave VMware at the end of their contract “explicitly because of uncertainty about how the acquisition will unfold”, wrote McDowell in a January research note.
However, the true impact the acquisition has had on Nutanix’s growth may not be known until Q4’s results or fiscal 2025, when more VMware customers’ contracts have expired.
Nutanix Hits 52-Week High
The cloud theme may get a near-term second wind from another blowout quarter from Nvidia [NVDA], sustained by the generative artificial intelligence hype — the Nutanix share price rose 3.6% last week, and hit an all-time high on 21 May, the eve of Nvidia’s earnings report. Nevertheless, cloud stocks could still be stymied by weak demand across the industry.
Rather than buying Okta and Nutanix shares outright, another way to gain exposure to the stocks and the broader cloud industry is through thematic ETFs.
The Amplify Global Cloud Technology ETF [IVES] holds Nutanix and Okta, with weightings of 3.2% and 2.6% respectively, as of 28 May. The fund is up 42.5% in the past year and up 11.7% year-to-date.
The Themes Cloud Computing ETF [CLOD] also holds both Okta and Nutanix, with weightings of 0.8% and 0.9% respectively. The fund is down 1.8% since its launch on 13 March.
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