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Okta CEO: Microsoft’s Identity Business ‘Is Relatively Weak In The Mid-Market’

‘I would call that out as a weakness for Microsoft - the smaller companies and the mid-market. Maybe it‘s because of their channel, maybe it’s I don’t know why, but they’ve tended to not show up very well in that segment,’ says Okta CEO Todd McKinnon.

Okta Co-Founder and CEO Todd McKinnon said Microsoft hasn’t shown up very well for smaller and mid-market identity customers due perhaps to their channel.

The San Francisco-based identity security provider said it was scary when Redmond, Wash.-based software giant Microsoft first launched a product in the identity space seven or eight years ago, according to McKinnon. But McKinnon said it turned out to be the best thing that ever happened to Okta since it validated the idea of identity being a primary system that organizations need to invest in.

“Microsoft is relatively weak in the mid-market for their identity business,” McKinnon told investors Wednesday. “I would call that out as a weakness for Microsoft - the smaller companies and the mid-market. Maybe it‘s because of their channel, maybe it’s I don’t know why, but they’ve tended to not show up very well in that segment.”

[Related: Okta Taps Former Insight President Steve Dodenhoff To Lead Channels]

Microsoft didn’t immediately respond to a CRN request for comment.

The competition between Okta and Microsoft in the identity space has attracted a lot of attention from investors in recent months. Between November 2020 and January 2021, analyst firm BTIG said it was hearing more commentary from partners about Microsoft’s Azure Active Directory being a viable threat to Okta around their core workforce identity capabilities, BTIG analysts wrote in a report issued Sunday.

But since mid-March, partners have been telling BTIG that they only see Azure Active Directory as a viable solution for budget-constrained customers, and that it isn’t viewed as a true enterprise-grade product for buyers focused on security.

In addition, partners told BTIG that customers who adopted Microsoft’s multi-factor authentication product last year as part of an E5 license sale are now realizing its shortcomings. As a result, these customers are looking to upgrade to solutions with better integrations like Okta, according to BTIG.

Similarly, a KeyBanc survey of partners last month found that Okta is the biggest beneficiary of identity and access management (IAM) modernization, with 54 percent of respondents citing Okta while just 27 percent cited Microsoft. Partners saw the IAM modernization scene differently three months earlier, with 42 percent of respondents selecting Okta and 42 percent selecting Microsoft as the big winner.

KeyBanc sees Okta‘s $6.5 billion acquisition of customer identity and access management player Auth0 as well as its April product announcements around identity governance and administration (IGA) and privileged access management (PAM) as significant steps toward becoming a consolidator in the IAM market. Okta’s push into IGA and PAM is expected to put pressure on legacy incumbents in both spaces.

Okta’s revenue for the quarter ended April 30 skyrocketed to $251 million, up 37 percent from $182.9 million the year prior. That crushed Seeking Alpha’s estimate of $239.1 million.

The company’s net loss worsened to $109.2 million, or $0.83 per diluted share, 89.4 percent larger than a net loss of $57.7 million, or $0.47 per diluted share, last year. On a non-GAAP basis, net loss worsened to $13 million, or $0.10 per diluted share, 74.3 percent larger than a net loss of $7.4 million, or $0.06 per diluted share, last year. That beat Seeking Alpha’s non-GAAP net loss estimate of $0.20 per share.

Okta’s stock is down $8.78 (3.56 percent) to $237.75 per share in after-hours trading. Earnings were announced after the market closed Wednesday.

The company’s subscription revenue in the quarter surged to $240.1 million, up 38.1 percent from $173.8 million the year prior. And Okta professional services revenue jumped to $10.9 million, up 20.6 percent from $9.1 million last year.

For the quarter ending July 31, Okta expects non-GAAP net loss of $0.35 to $0.36 per share on revenue of $295 million to $297 million. Analysts had been expecting non-GAAP net loss of $0.11 per share on earnings of $260.5 million, according to Seeking Alpha.

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