Yahoo Finance Okta CEO: We're aiming at a 'long-term strategic opportunity'
Okta CEO Todd McKinnon says demand for his security platform is solid while acknowledging that it will take a little time before execution improves after a challenging second quarter.
"I think over time the numbers are going to speak for themselves as we make our way toward this long-term strategic opportunity," McKinnon told Yahoo Finance Live at the Goldman Sachs Communacopia + Technology Conference on Tuesday (video above).
At issue is the performance of Okta's sales teams in the wake of combining with newly-acquired identity platform Auth0 (a $6.5 billion deal that closed earlier this year).
The sales teams battled through a muddy process, and in turn saw an increase in attrition. That triggered a cut to full year bottom line guidance for Okta several weeks ago, which was not well-received in a jittery stock market.
Okta stock is now down 72.5% year to date versus a 26.5% drop for the Nasdaq Composite.
Here is an edited and condensed version of Yahoo Finance Live's interview with McKinnon at the Goldman conference.
Brian Sozzi: Tough day [Tuesday] for the markets. What do you make of this market backdrop and what gets it to stop?
Todd McKinnon: Well, I think an at Okta we really try to stay focused on the long-term vision. And that's to establish identity as one of the most important technical platforms for every organization in the world. And markets go up and markets go down. And it's important to communicate to investors our tactics of what we're doing, but more importantly, the long-term vision and strategy for the company. So that's what really what we try to stay focused on.
Sozzi: What has been the feedback so far from the investors you met? I understand you've had a pretty busy slate here so far.
McKinnon: Yeah, it's been really amazing to come see people in person and interact with them and talk about primarily long-term strategy. That is we're changing the category of identity, which is traditionally been more of a tactical departmental sale to we're turning it into this enterprise wide strategic initiative across every buying center in our customers. Whether it's Chief Digital Officers, Chief Marketing Officers, we want to help them reach new customers, help them grow their businesses. Whether it's the Chief Information Officer, help them be more secure, more reliable, and help the security officer do the same.
So we're trying to appeal to every buyer in an enterprise and establish that primary platform for identity.
Sozzi: One of the biggest buzzwords I've heard from a lot of folks here is "push out", as in deals are getting pushed out to next year. Are you seeing the same thing?
McKinnon: We saw a little bit of it in our latest quarter reported a couple of weeks ago. But I think it's really moderate right now. And it's something we're watching.
I think the bigger thing we're working on is how do we tactically execute toward this long-term strategy. And for us, that's all about successfully integrating the strategic acquisition we made a year and a half ago called Auth0. And that really gets us into this buying center of the Chief Digital Officer and the Chief Marketing Officer, and helps us really establish this broad platform that addresses all of the identity use cases across an entire enterprise.
Sozzi: You pulled no punches on that last earnings call. You said look, we are having some challenges integrating the sales forces of these two companies. Where are you at in that integration process?
McKinnon: We're making a lot of progress. We did discuss this in detail. And I think the feedback from investors has been positive and constructive.
In this dialogue, I think the first thing we did is we talked about the positives from the quarter, which is a record number of million dollar plus deals to customer success, we have an over 122% net revenue retention in our customer base, which means the customer base is healthy. But we are seeing some headwinds in terms of integrating the sales teams and more importantly, being better and crisper about clarifying our message to the market about why this is such a strategic investment for them to make.
And as we do that more effectively, and some of these measures we're putting into place take effect, I think we're going to see a lot of success going forward.
Sozzi: Are you still as upbeat about the acquisition as you were when you made it?
McKinnon: It sounds strange at this time, but even more so.
I think we've seen many proof points about how customers are seeing the combination as this real strategic provider of identity across all these use cases. And not to mention the technical innovations that are happening on both Auth0 and Okta and the joint company coming together — the technical innovations are very exciting. And I think the momentum is there to be had.
Sozzi: How's the sales team going to market differently compared to a couple of months ago?
McKinnon: The biggest change we made at the beginning of this fiscal year was that instead of having two separate sales teams — so a customer would have two reps — now we have one joint sales team. So a customer has one sales rep. So that one sales rep sells all of the products across the entire portfolio. So that's powerful.
But I think that takes a little bit more time than we expected for that sales rep to come up to speed on how to sell that broad portfolio. And those are some of the things we're addressing tactically in the near term.
Sozzi: When should investors see improvement?
McKinnon: I think first with our guidance going forward that we issued on the earnings call — it's very prudent. And I think it takes into the realities of some of these opportunities and these challenges we're working through. So I think we have a lot of confidence in this prudent guidance. And I think over time, the numbers are going to speak for themselves as we make our way toward this long-term strategic opportunity.
Sozzi: Does this environment feel recessionary to you?
McKinnon: I think for us, the industry we're in is such a critical need for customers. We have seen sales cycles lengthen a bit at the back end of the second quarter, and we've seen anecdotally some conversations about budgets being more scrutinized. I think what we sell is mission critical. And so I think for us, we're not in the best position to see that given how critical it is, but we're watching it closely.
Sozzi: During your presentation at the Goldman conference, you mentioned you wanted to be in same breath as Amazon Web Services and SAP in terms of identity. Are you there yet?
McKinnon: We have work to do. Identity traditionally has been purchased as part of another system. So you got it with your Windows desktop, or you got it with your Oracle applications. And we're changing the game, we're moving identity to be one of the most important technical platforms that a company has.
And with so much clout and so much digital transformation, the opportunity is ripe, but we're not at the level of an AWS or a household name like SAP. But we can get there over time, because identity is so critical. And we have such a broad platform to address all of these use cases.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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