Okta

Enterprise Software - Infrastructure 

Richard Davis, CFA | Analyst |  Canaccord Genuity LLC (US) |  RDavis@canaccordgenuity.com |  617.371.3862
US Equity Research David Hynes Jr. | Analyst |  Canaccord Genuity LLC (US) |  DHynes@canaccordgenuity.com |  617.371.3882
6 September 2018 Mark Belcarz, CFA | Associate |  Canaccord Genuity LLC (US) |  MBelcarz@canaccordgenuity.com |  617.788.1529

BUY
unchanged Raising Target Price
PRICE TARGET US$75.00↑
from US$60.00
Price (6-Sep)
Ticker
US$60.20
OKTA-NASDAQ
Full speed ahead with record customer additions
Okta reported another big upside as subscription revenue growth kept up near 60% and
FCF margins improved by 540 bps year-over-year. Stepping back, if you believe, as we
52-Week Range (US$): 24.50 - 63.71
Market Cap  (US$M): 8,254 do, that we live in a world where organizations are using more, not fewer cloud apps and
Shares Out. (M)  : 137.1 that the employee journey will continue to be fluid – people join, leave, change roles,
Enterprise Value  (US$M): 7,981 etc. – then there will continue to be a growing need for tools that help with access and
user lifecycle management. This demand is rooted in a desire to drive IT operational
FYE Jan 2018A 2019E 2020E
efficiency, maintain a single system of record, and perhaps most importantly, ensure
Sales  (US$M) 256.5 375.0↑ 490.0↑
organizational security. With a network of more than 5,500 pre-built integrations, Okta
Previous - 357.0 465.0
is emerging as the go-to partner to manage this part of the Identity puzzle. This reality is
EV/Sales (x)  31.1 21.3 16.3
EBIT Margin (%) 
not lost on investors, who have pushed OKTA shares to a near industry high valuation at
(23.9) (15.2) (9.3) 16.3x EV/R on C2019E. We’ve said in the past that if valuation is the only reason not to
Non-GAAP  
Free Cash Flow  (37.2) (18.5) 16.5 own a stock, you should probably buy a little. That’s pretty much what we’re advocating
(US$M)
here – OKTA is valued such that we’d at least own a starter position in the stock today
EPS  Non-GAAP
 (US$) (0.72) (0.46)↑ (0.37) and then look to add on pullbacks. BUY.
Previous - (0.55) -
Investment highlights
Quarterly Sales  Q1 Q2 Q3 Q4 Bullish items. 450 net new customer additions in the period was a quarterly record;
2018A 52.3 60.3 66.9 77.1 growth in customers with ARR >$100K increased to 55%, which is up from 52% in
2019E 83.6A 94.6A 97.0 99.8 FQ1; net dollar retention was strong again at 121%; full year revenue guidance, which
2020E 107.5 120.8 127.6 134.1 was increased by $19M, more than flowed through the upside reported in the quarter;
Quarterly EPS  Q1 Q2 Q3 Q4
notable customer wins included an expansion with 21st Century Fox, a multi-product deal
Non-GAAP   with Cisco Meraki, the addition of NTT Data, which is a Top 10 IT Services organization,
2018A (0.47) (0.15) (0.19) (0.08) and a 15,000 employee Asset Manager who will leverage Okta for both internal use
2019E (0.09)A (0.15)A (0.11) (0.10) cases as well as client facing portals; the acquisition of ScaleFT will add Zero Trust
2020E (0.15) (0.11) (0.08) (0.04) security tech aimed at continuous authentication and server access management.
70 Bearish items. FQ3 revenue guidance implies only $2.5M in sequential revenue growth
65 (+43-45% y-o-y), a prospective slowdown that management attributed to a prudent cut
60 at the timing around Enterprise deal signings – we suspect there is a similar level of
55 potential revenue upside implicit in this guidance; the biggest pushback we get on OKTA,
50 which is fair, is around valuation as even on more realistic, “upside” C2019 projections,
45 we’d guess that OKTA is still trading at >14x EV/R on C2019E.
40
35
The numbers: no surprise here, another upside. Okta reported revenue and non-GAAP
30
operating loss of $94.6M (+57% y-o-y) and ($19.2M), which were respectively $9.6M
25
and $2.8M ahead of our estimates. FCF loss was ($11.3M) during FQ2, which was nicely
20
ahead of our ($14.2M) estimate. Calculated billings came in at $109.4M, nicely ahead
of our $99.0M estimate and up 53% y-o-y. Okta ended the quarter with 5,150 customers
May-18
Nov-17

Dec-17

Aug-18
Mar-18

Sep-18
Feb-18
Oct -17

Apr-18

Jun-18
Jan-18

Jul-18

(+41% y-o-y), implying 450 net new additions, up from 350 in FQ1 and 300 a year ago.
OKTA
S& P 500 (rebased)
Thinking about the stock. The truth is that it’s really hard to come up with a constructive
Source: Fact Set valuation case here. That said, our job is tell you what we think a stock is going to do,
Priced as of close of business 6 September 2018 
and in OKTA’s case, it’s likely to go higher. The general sentiment on the buyside is this
Okta provides a cloud-based Identity platform enabling
market is going to be big, Okta is the leader, we know we need some exposure, but dang
users to seamlessly connect to a variety of IT assets the stock is expensive. Strong results like this often get at least a portion of the nervous
bulls over the edge, which probably is enough to keep the stock's momentum intact.

Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)
The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all
the companies and securities that are the subject of this report discussed herein.

For important information, please see the Important Disclosures beginning on page 5 of this document.
 Okta
Raising Target Price

Outlook: ranges inch up, even if conservative

Okta increased F2019 revenue and non-GAAP operating income guidance by $19M
and $7M, respectively, which at the high-end implies 46% revenue growth and -15%
margins. From a FCF perspective, we continue to believe that Okta will be slightly
profitable in Q4/F19. Looking ahead, we have flowed through much of the upside to
F2020 estimates, which now call for 31% growth and -9% operating margins.
Valuation and price target
We laid out our high-level thoughts on the stock earlier, but in terms of a near-term
price target we are increasing it by $15.00 to $75.00. Our new price target is based
on a 17.1x EV/revenue multiple applied to our C2020 estimate of $635M and
assumes ~$250M in prospective net cash and 148M fully diluted shares outstanding.
Quarterly results
The table below details Okta’s July quarter (Q2/F19) results compared to our
published estimates and the year ago quarter’s results.
Figure 2: OKTA July-2018 (Q2/F19)
Actial - Percent
$ Millions Jul-17 Jul-18 Jul-18E Estimate Difference
Subscription 55.3 87.9 78.8 9.1 11%
Professional Services 4.9 6.7 6.2 0.5 9%
Total Revenues 60.3 94.6 85.0 9.6 11%
Cost of Subscription (11.6) (17.3) (15.0) (2.3) -16%
Cost of Professional Services (6.3) (7.9) (7.4) (0.5) -7%
Total Cost of Revenues (17.9) (25.2) (22.4) (2.8) -13%
non-GAAP Gross Profit 42.4 69.3 62.6 6.8 11%
Research & Development (12.5) (19.6) (17.0) (2.6) -15%
Sales & Marketing (34.9) (53.5) (55.1) 1.6 3%
General & Administrative (9.2) (15.5) (12.5) (3.0) -24%
Total non-GAAP Operating Expenses (56.6) (88.5) (84.6) (4.0) -5%
non-GAAP Operating Income (14.2) (19.2) (22.0) 2.8 13%
Stock Based Comp (12.0) (18.2) (17.5) (0.7) -4%
Amortization of Intagibles, Other 0.0 (1.0) 0.0 (1.0) n/a
GAAP Operating Income (26.2) (38.4) (39.5) 1.1 3%
Other Income & Expense, net 0.4 (1.8) (3.0) 1.2 41%
Pre-tax Income (25.8) (40.2) (42.5) 2.3 5%
Tax Rate -1% 2% 0% 3% n/a
Income Tax (0.2) 1.0 (0.1) 1.1 1019%
GAAP Net Income (26.0) (39.2) (42.6) 3.4 8%
Reversal of SBC, Amort, & Other 12.0 22.8 21.1 1.7 8%
Tax Effect of Add-Backs 0.0 0.0 0.0 0.0 n/a
non-GAAP Net Income (14.1) (16.4) (21.5) 5.1 24%
Basic Shares Outstanding 93.6 106.7 106.0 0.7 1%
Diluted Shares Outstanding 93.6 137.1 136.0 1.1 1%
non-GAAP EPS ($0.15) ($0.15) ($0.20) $0.05 24%
Fully-Taxed non-GAAP EPS (at 35%) ($0.10) ($0.13) ($0.15) $0.03 17%
GAAP EPS ($0.28) ($0.37) ($0.40) $0.03 9%
Calculated Billings (Revenue + ∆ Deferred) $71.7 $109.4 $99.0 $10.4 10%
Growth 54% 53% 38% 14% --
ST-DR Only Calculated Billings $72.3 $108.3 $99.0 $9.3 9%
Growth 53% 50% 37% 13% --
Ending Customer Count 3,650 5,150 4,975 175 4%
Growth 38% 41% 36% 5% --
Annualized Subs Revenue/Customer $60,621 $68,236 $63,357 $4,879 8%
Growth 18% 13% 5% 8% --
Free Cash Flow ($10.5) ($11.3) ($14.2) $2.9 20%
Growth 30% -8% -36% n/a n/a
Free Cash Flow/Share ($0.11) ($0.11) ($0.13) $0.03 21%
Net Cash per Share $2.28 $1.99 $2.04 ($0.06) -3%
Source: Company Reports, Canaccord Genuity estimates

2
Buy unchanged Target Price US$75.00 from US$60.00 | 6 September 2018 Enterprise Software - Infrastructure 2
 Okta
Raising Target Price

Figure 3: Income statement

Okta, Inc.
(OKTA/NASDAQ)
9/6/2018 *Not restated for ASC 606
Income Statement CY-2014 CY-2015 Quarterly CY-2016 Quarterly CY-2017 Quarterly CY-2018E Quarterly CY-2019E CY-2020E

$ Millions FY-2015* FY-2016* Apr-16 Jul-16 Oct-16 Jan-17 FY-2017 Apr-17 Jul-17 Oct-17 Jan-18 FY-2018 Apr-18 Jul-18 Oct-18E Jan-19E FY-2019E Apr-19E Jul-19E Oct-19E Jan-20E FY-2020E FY-2021E
Subscription 38.1 76.4 28.2 34.0 38.5 44.2 144.9 48.3 55.3 61.9 71.0 236.4 76.8 87.9 90.5 92.8 348.0 100.0 113.5 120.0 126.0 459.5 600.5
Professional Services 2.9 9.5 3.8 3.6 4.2 4.3 15.9 4.0 4.9 5.0 6.1 20.1 6.8 6.7 6.5 7.0 27.0 7.5 7.3 7.6 8.1 30.5 34.5
Total Revenues 41.0 85.9 32.0 37.5 42.7 48.5 160.8 52.3 60.3 66.9 77.1 256.5 83.6 94.6 97.0 99.8 375.0 107.5 120.8 127.6 134.1 490.0 635.0
Cost of Subscription (9.3) (19.6) (7.0) (8.0) (8.0) (9.1) (32.0) (10.5) (11.6) (12.1) (13.6) (47.9) (14.8) (17.3) (17.5) (17.6) (67.2) (19.0) (21.3) (22.2) (22.7) (85.2) (106.5)
Cost of Professional Services (8.6) (14.8) (4.6) (5.0) (5.2) (5.6) (20.5) (5.8) (6.3) (6.6) (6.5) (25.1) (6.9) (7.9) (7.8) (8.1) (30.7) (8.9) (8.5) (8.7) (9.0) (35.1) (39.7)
Total Cost of Revenues (17.9) (34.4) (11.7) (13.0) (13.2) (14.7) (52.5) (16.3) (17.9) (18.7) (20.1) (73.0) (21.7) (25.2) (25.3) (25.7) (97.9) (27.9) (29.8) (30.9) (31.7) (120.3) (146.2)
non-GAAP Gross Profit 23.1 51.5 20.4 24.6 29.5 33.8 108.3 36.0 42.4 48.2 57.0 183.5 61.9 69.3 71.7 74.1 277.1 79.6 91.0 96.7 102.4 369.7 488.8
Research & Development (16.7) (27.0) (8.1) (8.9) (8.9) (9.7) (35.7) (12.1) (12.5) (14.0) (14.2) (52.7) (15.7) (19.6) (19.7) (20.0) (74.9) (21.0) (23.6) (24.2) (24.8) (93.6) (114.8)
Sales & Marketing (47.9) (75.1) (23.0) (25.4) (28.7) (27.7) (104.7) (32.9) (34.9) (43.7) (40.3) (151.8) (45.3) (53.5) (52.4) (53.3) (204.6) (61.8) (64.6) (66.6) (67.7) (260.8) (324.0)
General & Administrative (9.8) (15.4) (6.2) (5.4) (6.4) (7.3) (25.3) (9.6) (9.2) (9.9) (11.6) (40.3) (11.7) (15.5) (13.7) (13.8) (54.6) (14.2) (15.5) (15.6) (15.7) (60.9) (69.2)
Total non-GAAP Operating Expenses (74.3) (117.5) (37.4) (39.7) (44.0) (44.6) (165.7) (54.6) (56.6) (67.5) (66.1) (244.8) (72.8) (88.5) (85.7) (87.1) (334.1) (97.0) (103.6) (106.4) (108.2) (415.3) (508.0)
non-GAAP Operating Income (51.2) (65.9) (17.0) (15.1) (14.4) (10.8) (57.4) (18.5) (14.2) (19.4) (9.1) (61.2) (10.8) (19.2) (14.0) (13.0) (57.0) (17.3) (12.7) (9.8) (5.8) (45.5) (19.1)
Stock Based Comp (6.6) (9.8) (3.4) (3.7) (4.8) (5.3) (17.1) (8.9) (12.0) (14.4) (14.6) (49.9) (14.1) (18.2) (20.0) (21.5) (73.9) (21.0) (24.5) (27.5) (30.0) (103.0) (103.0)
Amortization of Intagibles, Other (1.0) (0.2) (0.0) (0.0) (0.0) (0.0) (0.2) (0.0) 0.0 (0.8) 0.0 (0.8) 0.0 (1.0) 0.0 0.0 (1.0) 0.0 0.0 0.0 0.0 0.0 0.0
GAAP Operating Income (58.8) (76.0) (20.4) (18.8) (19.3) (16.1) (74.7) (27.4) (26.2) (34.5) (23.7) (111.9) (25.0) (38.4) (34.0) (34.5) (131.9) (38.3) (37.2) (37.3) (35.8) (148.5) (122.1)
Other Income & Expense, net (0.2) (0.0) 0.0 0.1 0.1 (0.1) 0.0 (0.0) 0.4 0.5 0.8 1.7 (1.2) (1.8) (2.0) (2.0) (7.0) (3.0) (3.0) (3.0) (3.0) (12.0) (12.0)
Pre-tax Income (59.0) (76.0) (20.4) (18.7) (19.3) (16.2) (74.6) (27.5) (25.8) (34.0) (22.9) (110.2) (26.2) (40.2) (36.0) (36.5) (138.9) (41.3) (40.2) (40.3) (38.8) (160.5) (134.1)
Tax Rate 0% 0% 0% -1% 0% -1% -1% -1% -1% 3% -1% 0% 1% 2% 0% 0% 1% 0% 0% 0% 0% 0% 0%
Income Tax (0.1) (0.3) (0.1) (0.1) (0.1) (0.2) (0.4) (0.2) (0.2) 0.9 (0.1) 0.3 0.2 1.0 (0.1) (0.1) 1.0 (0.1) (0.1) (0.1) (0.1) (0.4) (0.4)
GAAP Net Income (59.1) (76.3) (20.5) (18.8) (19.4) (16.4) (75.1) (27.7) (26.0) (33.1) (23.0) (109.8) (26.0) (39.2) (36.1) (36.6) (137.9) (41.4) (40.2) (40.4) (38.9) (161.0) (134.5)
Reversal of SBC, Amort, & Other 7.5 10.1 3.4 3.7 4.9 5.3 17.3 8.9 12.0 15.2 14.6 50.6 16.5 22.8 23.6 25.1 88.0 24.6 28.1 31.1 33.6 117.4 117.4
Tax Effect of Add-Backs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
non-GAAP Net Income (51.6) (66.2) (17.1) (15.1) (14.5) (11.1) (57.7) (18.8) (14.1) (17.9) (8.5) (59.2) (9.4) (16.4) (12.5) (11.5) (49.9) (16.8) (12.1) (9.3) (5.3) (43.6) (17.1)
Basic Shares Outstanding 77.3 77.3 78.5 78.5 78.5 78.5 78.5 39.8 93.6 95.5 101.0 82.5 104.2 106.7 108.8 111.0 107.7 113.2 115.5 117.8 120.2 116.7 126.3
Diluted Shares Outstanding 77.3 77.3 78.5 78.5 78.5 78.5 78.5 39.8 93.6 95.5 101.0 82.5 134.6 137.1 139.8 142.6 138.5 145.5 148.4 151.4 154.4 149.9 162.3
non-GAAP EPS ($0.67) ($0.86) ($0.22) ($0.19) ($0.18) ($0.14) ($0.74) ($0.47) ($0.15) ($0.19) ($0.08) ($0.72) ($0.09) ($0.15) ($0.11) ($0.10) ($0.46) ($0.15) ($0.11) ($0.08) ($0.04) ($0.37) ($0.13)
Fully-Taxed non-GAAP EPS (at 35%) ($0.43) ($0.55) ($0.14) ($0.12) ($0.12) ($0.09) ($0.47) ($0.30) ($0.10) ($0.13) ($0.05) ($0.47) ($0.08) ($0.13) ($0.10) ($0.09) ($0.39) ($0.12) ($0.09) ($0.07) ($0.05) ($0.32) ($0.16)
GAAP EPS ($0.76) ($0.99) ($0.26) ($0.24) ($0.25) ($0.21) ($0.96) ($0.70) ($0.28) ($0.35) ($0.23) ($1.33) ($0.25) ($0.37) ($0.33) ($0.33) ($1.28) ($0.37) ($0.35) ($0.34) ($0.32) ($1.39) ($1.07)
Calculated Billings (Revenue + ∆ Deferred) $68.1 $118.0 $34.2 $46.5 $51.1 $62.7 $194.5 $59.9 $71.7 $78.6 $104.8 $314.9 $95.9 $109.4 $114.0 $137.0 $456.3 $124.0 $138.0 $142.0 $180.0 $584.0 $740.0
Growth 134% 73% n/a n/a n/a n/a n/a 75% 54% 54% 67% 62% 60% 53% 45% 31% 45% 29% 26% 25% 31% 28% 27%
ST-DR Only Calculated Billings $63.3 $115.2 n/a $47.2 $52.8 $63.5 n/a $60.5 $72.3 $79.3 $102.0 $314.1 $96.5 $108.3 $114.0 $137.0 $455.8 $124.0 $138.0 $142.0 $180.0 $584.0 $740.0
Growth 140% 82% n/a n/a n/a n/a n/a n/a 53% 50% 60% n/a 60% 50% 44% 34% 45% 28% 27% 25% 31% 28% 27%
Ending Customer Count 1,320 2,225 2,450 2,650 2,900 3,100 3,100 3,350 3,650 3,950 4,350 4,350 4,700 5,150 5,450 5,800 5,800 6,100 6,450 6,725 7,100 7,100 8,350
Growth n/a 69% 57% 48% 45% 39% 39% 37% 38% 36% 40% 40% 40% 41% 38% 33% 33% 30% 25% 23% 22% 22% 18%
Annualized Subs Revenue/Customer $28,892 $42,501 $46,041 $51,286 $53,157 $57,023 $57,023 $57,647 $60,621 $62,646 $65,253 $65,253 $65,397 $68,236 $66,422 $63,995 $63,995 $65,574 $70,388 $71,376 $70,986 $70,986 $77,126
Growth n/a n/a 24% 28% 31% 34% 34% 25% 18% 18% 14% 14% 13% 13% 6% -2% -2% 0% 3% 7% 11% 11% 9%
Free Cash Flow (35.7) (48.2) ($17.2) ($15.0) ($11.8) ($9.8) ($53.8) ($13.3) ($10.5) ($11.2) ($2.2) ($37.2) ($1.6) ($11.3) ($9.8) $4.2 (18.5) $0.4 ($7.6) ($2.7) $26.5 16.5 45.0
Growth n/a -35% -58% -45% n/a 13% -12% 15% 30% 5% 78% 31% -88% -8% -12% n/a 50% n/a 33% 72% 527% n/a 172%
Free Cash Flow/Share ($0.46) ($0.62) ($0.22) ($0.19) ($0.15) ($0.12) ($0.69) ($0.34) ($0.11) ($0.12) ($0.02) ($0.59) ($0.01) ($0.11) ($0.09) $0.03 ($0.18) $0.00 ($0.07) ($0.02) $0.17 $0.09 $0.26
Net Cash per Share $0.78 $1.14 $0.89 $0.70 $0.54 $0.48 $0.48 $5.64 $2.28 $2.34 $2.28 $2.28 $2.13 $1.99 $1.92 $1.88 $1.88 $1.83 $1.72 $1.64 $1.76 $1.76 $1.81

Annual Pct. Change

Subscription n/a 100% -- -- -- -- -- 71% 63% 61% 61% 63% 59% 59% 46% 31% 47% 30% 29% 33% 36% 32% 31%
Professional Services n/a 230% -- -- -- -- -- 5% 39% 21% 41% 27% 68% 36% 29% 15% 34% 11% 8% 17% 16% 13% 13%
Total Revenues n/a 109% -- -- -- -- -- 63% 60% 57% 59% 60% 60% 57% 45% 30% 46% 29% 28% 32% 34% 31% 30%
non-GAAP Gross Profit n/a 123% -- -- -- -- -- 77% 72% 63% 68% 69% 72% 64% 49% 30% 51% 29% 31% 35% 38% 33% 32%
Research & Development n/a 62% -- -- -- -- -- 48% 40% 58% 46% 48% 30% 57% 40% 41% 42% 33% 20% 23% 24% 25% 23%
Sales & Marketing n/a 57% -- -- -- -- -- 43% 38% 52% 46% 45% 38% 54% 20% 32% 35% 36% 21% 27% 27% 27% 24%
General & Administrative n/a 58% -- -- -- -- -- 54% 71% 54% 60% 59% 23% 68% 39% 19% 36% 21% 0% 14% 14% 11% 14%
non-GAAP EPS n/a -28% -- -- -- -- -- -117% 22% -2% 41% 2% 81% -2% 39% -23% 36% -64% 32% 32% 57% 21% 63%
Fully-Taxed non-GAAP EPS (at 35%) n/a -28% -- -- -- -- -- -116% 23% -8% 41% 1% 75% -33% 25% -63% 18% -55% 31% 26% 46% 18% 50%
GAAP EPS n/a -29% -- -- -- -- -- -167% -16% -40% -9% -39% 64% -32% 4% -44% 4% -47% 5% -3% 2% -8% 23%
Margins, Expense Ratios & Other Metrics
Subscription GM 76% 74% 75% 77% 79% 79% 78% 78% 79% 80% 81% 80% 81% 80% 81% 81% 81% 81% 81% 82% 82% 81% 82%
Professional Services GM -201% -56% -21% -40% -24% -30% -29% -44% -27% -31% -6% -25% -2% -18% -20% -15% -14% -18% -16% -15% -11% -15% -15%
Total Gross Margin 56.2% 60.0% 63.6% 65.4% 69.2% 69.7% 67.4% 68.8% 70.3% 72.0% 73.9% 71.5% 74.1% 73.3% 74.0% 74.3% 73.9% 74.1% 75.3% 75.8% 76.4% 75.5% 77.0%
As a Pct of Sales: Research & Development 41% 31% 25% 24% 21% 20% 22% 23% 21% 21% 18% 21% 19% 21% 20% 20% 20% 20% 20% 19% 19% 19% 18%
Sales & Marketing 117% 87% 72% 68% 67% 57% 65% 63% 58% 65% 52% 59% 54% 57% 54% 53% 55% 58% 54% 52% 51% 53% 51%
General & Administrative 24% 18% 19% 14% 15% 15% 16% 18% 15% 15% 15% 16% 14% 16% 14% 14% 15% 13% 13% 12% 12% 12% 11%
non-GAAP Operating Margin -125.0% -76.7% -53.1% -40.2% -33.8% -22.3% -35.7% -35.4% -23.6% -28.9% -11.9% -23.9% -13.0% -20.3% -14.4% -13.0% -15.2% -16.1% -10.5% -7.6% -4.3% -9.3% -3.0%
GAAP Operating Margin -143.3% -88.4% -63.7% -50.1% -45.2% -33.3% -46.4% -52.4% -43.5% -51.6% -30.8% -43.6% -29.9% -40.6% -35.1% -34.5% -35.2% -35.6% -30.8% -29.2% -26.7% -30.3% -19.2%
FCF Margin -87.0% -56.2% -53.7% -40.0% -27.6% -20.2% -33.5% -25.5% -17.4% -16.8% -2.8% -14.5% -1.9% -12.0% -10.2% 4.2% -4.9% 0.4% -6.3% -2.2% 19.8% 3.4% 7.1%
Sequential Pct. Change
Subscription 19% 20% 13% 15% 9% 15% 12% 15% 8% 14% 3% 3% 8% 14% 6% 5%
Professional Services 10% -7% 17% 3% -6% 22% 2% 21% 11% -1% -3% 8% 7% -3% 4% 7%
Total Revenues 18% 17% 14% 14% 8% 15% 11% 15% 9% 13% 3% 3% 8% 12% 6% 5%

Source: Company Reports, Canaccord Genuity estimates. A more detailed financial model, including balance sheet, income statement, and cash flow projections, if available, may be obtained by contacting your Canaccord Genuity Sales Person or the Authoring Analyst, whose contact
information appears on the front page of this report.

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Figure 4: Balance sheet and SOCF

Okta, Inc. Okta, Inc.

(OKTA/NASDAQ) (OKTA/NASDAQ)
9/6/2018 9/6/2018
Statement of Cash Flows Fiscal Year-End Balance Sheet Fiscal Year-End Most
$ Millions $ Millions Recent Q
Jan-17A Jan-18A Jan-19E Jan-20E Jan-21E Jan-17A Jan-18A Jan-19E Jan-20E Jan-21E Jul-18A
Operating Activities Assets
Net Income (75.1) (109.8) (137.9) (161.0) (134.5) Cash and Cash Equivalents 23.3 127.9 195.8 212.4 257.4 192.9
Stock-Based Compensation Expense 17.1 49.9 73.9 103.0 103.0 Restricted Cash, Current 0.0 0.0 0.0 0.0 0.0 0.0
Depreciation and Amortization 4.6 7.0 7.5 9.8 11.5 Short-term Investments 14.4 101.8 343.4 343.4 343.4 343.4
Amortization of Debt Discount & Iss Costs 0.0 0.0 13.0 14.0 14.0 Accounts Receivable 34.5 52.2 74.7 96.5 124.1 59.8
Amortization of Deferred Commissions 5.8 9.6 20.1 24.7 25.7 Deferred Commissions, Current 13.2 17.8 22.0 26.8 34.0 19.8
Other Non-Cash Reconciling Items 0.7 2.0 (0.5) 0.0 0.0 Prepaid Expenses & Other Current 8.6 17.8 28.9 42.2 57.8 17.4
Changes in Operating Assets & Liabilities: Total Current Assets 94.0 317.5 664.8 721.3 816.7 633.4
Accounts Receivable (12.0) (18.3) (22.1) (21.8) (27.6)
Deferred Commissions (19.4) (21.4) (33.0) (36.5) (42.9) Property and Equipment, net 11.0 12.5 45.0 48.7 53.0 40.7
Prepaid Expenses & Other Current Assets (3.2) (9.4) (12.3) (13.3) (15.6) Deferred Commissions, Non-current 33.5 40.8 49.4 56.3 66.3 43.3
Accounts Payable 1.5 3.5 6.9 10.5 13.3 Restricted Cash 0.0 0.0 0.0 0.0 0.0 0.0
Accrued Comp, Expenses & Other Liabilities 4.4 4.1 6.4 10.5 12.5 Intangibles Assets, net 9.2 11.8 11.3 11.2 11.0 16.0
Deferred Revenue 33.5 57.7 81.0 94.1 105.0 Goodwill 2.6 6.3 18.1 18.1 18.1 18.1
Cash Flow from Operations (42.1) (25.2) 3.0 34.0 64.5 Other Long-Term Assets 5.0 10.4 12.5 12.5 12.5 12.5
Total Assets 155.3 399.3 801.1 868.1 977.5 763.9
Investing Activities
Purchase of Property & Equipment (6.3) (6.6) (16.8) (11.5) (13.5) Liabilities and Shareholders' Equity
Net Change in Investments 18.7 (87.7) (240.5) 0.0 0.0 Accounts Payable 9.4 9.6 17.0 27.5 40.8 12.6
Capitalized Software Development Costs (5.5) (5.4) (4.7) (6.0) (6.0) Accrued Comp, Expenses & Other Current 17.1 18.6 20.4 30.8 43.4 19.1
Payments for Acquisitions, net of cash 0.0 0.0 (15.6) 0.0 0.0 Deferred Revenue, Current 103.0 159.8 240.6 334.7 439.7 186.4
Other Investing 0.0 0.0 0.0 0.0 0.0 Total Current Liabilities 129.5 187.9 277.9 393.0 523.9 218.1
Cash Flow from Investing 7.0 (99.7) (277.7) (17.5) (19.5)
Deferred Revenue, Non-current 4.2 5.0 5.5 5.5 5.5 5.5
Financing Activities Convertible Debt 0.0 0.0 270.4 284.4 298.4 263.8
Proceeds from Issuance of Common Stock 0.0 199.9 0.0 0.0 0.0 Other Long Term Liabilities 6.1 7.0 31.4 31.4 31.4 31.4
Proceeds from Issuance of Preferred Stock 0.0 0.0 0.0 0.0 0.0 Total Liabilities 139.7 199.9 585.2 714.3 859.1 518.8
Proceeds from Exercise of Stock Options 2.4 33.6 21.1 0.0 0.0
Other Proceeds/Payments (2.0) 3.8 313.8 0.0 0.0 Total Shareholders' Equity 15.6 199.3 215.9 153.8 118.5 245.1
Cash Flow from Financing 0.5 237.4 334.9 0.0 0.0 Total Liabilities and Shareholders' Equity 155.3 399.3 801.1 868.1 977.5 763.9

Effect of Exchange Rates (0.1) 0.5 (0.6) 0.0 0.0 Sales/Assets 1.0x 0.6x 0.5x 0.6x 0.6x
Change in Cash and ST Investments (34.8) 113.0 59.6 16.5 45.0 Assets/Equity 10.0x 2.0x 3.7x 5.6x 8.3x

Cash and ST Investments Beginning 58.1 23.3 136.2 195.8 212.4 Tangible Book Value/Share $1.86 $4.70 $5.70 $5.72 $5.96
Cash and ST Investments Ending 23.3 136.2 195.8 212.4 257.4 Net Cash & ST Investments/Share $0.48 $2.79 $3.89 $3.71 $3.70

Free Cash Flow (53.8) (37.2) (18.5) 16.5 45.0

FCF/Share ($0.69) ($0.45) ($0.13) $0.11 $0.28
FCF Margin -33.5% -14.5% -4.9% 3.4% 7.1%
Source: Company Reports, Canaccord Genuity estimates

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Appendix: Important Disclosures

Analyst Certification
Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the
recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and
objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring
analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed by the authoring analyst in the research.
Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of
Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications
with a subject company, public appearances and trading securities held by a research analyst account.
Sector Coverage
Individuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoring
analysts of the report.

Investment Recommendation
Date and time of first dissemination: September 06, 2018, 23:00 ET
Date and time of production: September 06, 2018, 22:15 ET
Target Price / Valuation Methodology:
Okta - OKTA
Our $75.00 price target is based on a ~17.1x EV/revenue multiple applied to our C2020 estimate of $635M and assumes ~$250M in
prospective net cash and 148M fully diluted shares outstanding.
Risks to achieving Target Price / Valuation:
Okta - OKTA
Okta faces macro, micro, and economic risks as well as competitive threats which could cause our estimates to be incorrect and the
value of OKTA shares to decline. For a full list of relevant risk disclosures please see OKTA's most recent SEC filings.

Distribution of Ratings:
Global Stock Ratings (as of 09/06/18)
Rating Coverage Universe IB Clients
# % %
Buy 550 62.43% 45.27%
Hold 218 24.74% 29.36%
Sell 11 1.25% 27.27%
Speculative Buy 102 11.58% 65.69%
881* 100.0%
*Total includes stocks that are Under Review

Canaccord Genuity Ratings System

BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer.
“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or the
relevant issuer.
Risk Qualifier
SPECULATIVE: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the
stock may result in material loss.
12-Month Recommendation History (as of date same as the Global Stock Ratings table)
A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month period
may be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures-
mar.canaccordgenuity.com/EN/Pages/default.aspx

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Required Company-Specific Disclosures (as of date of this publication)

Canaccord Genuity or one or more of its affiliated companies is a market maker or liquidity provider in the securities of Okta or in any
related derivatives.
Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking
services from Okta in the next three months.
An analyst has visited the material operations of Okta. No payment was received for the related travel costs.
The equity securities of Okta are subordinate voting shares.

Okta Rating History as of 09/05/2018

I:H:$25.00 H:$27.00 H:$28.00 H:$36.00 B:$50.00 B:$55.00 B:$60.00
05/02/2017 06/07/2017 09/07/2017 03/07/2018 04/22/2018 05/23/2018 06/06/2018

$70

$60

$50

$40

$30

$20
Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17 Oct 17 Jan 18 Apr 18 Jul 18

Closing Price Price Target

Buy (B); Speculative Buy (SB); Sell (S); Hold (H); Suspended (SU); Under Review (UR); Restricted (RE); Not Rated (NR)

Past performance
In line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole period
for which the financial instrument has been offered or investment service provided where less than five years. Please note price history
refers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.
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