The CEO of identity firm Okta explains how the $6.5 billion deal to buy Auth0 helps it better attack an enormous 2nd market
- Okta is acquiring identity management firm Auth0 for $6.5 billion in stock, it announced Wednesday.
- Auth0 will help Okta expand its customer identity business, CEO Todd McKinnon told Insider.
- Okta already saw that as a huge opportunity and this acquisition lets it attack it more aggressively.
Identity management firm Okta is acquiring startup Auth0 for $6.5 billion in stock, the companies announced Wednesday. Auth0 also makes software for identity and authentication, baking existing login and identity verification tools into code that developers can easily add to their websites or apps.
The deal gets Okta closer to its ultimate goal of becoming the leading identity management platform for businesses, CEO Todd McKinnon told Insider.
"Our strategic vision is that we have to make it really clear to every organization in the world that identity should be one of their strategic clouds in their environment," McKinnon said. "The way we get there is that we cover every identity use case."
Okta's stock was down about 10% after the announcement, bringing its market cap to roughly $31 billion, despite an earnings release that beat analyst expectations.
Right now, Okta is primarily known for its tool that helps businesses manage their employees' logins and identity. However, an even bigger challenge companies are facing right now is managing their own customer logins in a secure way - and Auth0 has the technology to help Okta grow that part of its business, McKinnon said.
He calls Auth0 the "Stripe of identity management" because it gives developers an easy, customizable tool to build the login sites for customers interacting with their business.
Right now 75% of Okta's business comes from its "workforce identity" tools, while 25% comes from its "customer identity" tools. Those customer identity tools allow, for example, grocery store client Albertsons to make it super easy and secure for shoppers to log into its website or mobile app to make delivery or pickup orders.
These tools allow companies to embed passwords, authentication, and other identity-management services into their apps and websites and McKinnon previously told Insider he believes that business has the potential to be even bigger than its workforce tools. Acquiring Auth0 will help the firm better attack that enormous market.
Auth0 is a developer-focused firm
Auth0 has been a developer-focused firm from the beginning, McKinnon said, which is what Okta needs to successfully expand its customer identity product.
"You can't just decide you're going to be developer focused one day. You have to build that culture. You have to build a product that does that," he said. "Bringing this together, we give customers just a clear trusted vendor to trust all of their identity to, whether it's customer identity or workforce."
Auth0 was founded in 2013 and has raised over $330 million in funding according to PitchBook. It netted a valuation of $1.92 billion after raising a $120 million round led by Salesforce Ventures last July, meaning this deal represents a hefty premium.
Okta's $6.5 billion all-stock deal will give Auth0 a fixed number of Okta shares at a price of $276.21 each, the companies said. The purchase represents roughly 14% of Okta's total number of shares, McKinnon said.
Auth0 will stay an independent operating unit inside of Okta with its CEO Eugenio Pace reporting to McKinnon. Auth0 currently has over 850 employees and 10,000 paying customers. Okta has over 10,000 customers.
Okta and Auth0 currently have some integrations that allow people to use an Okta login to log in to an Auth0 customer, but there's a lot more both companies can do with deeper integrations, execs said.
The main focus will be continuing to serve both Okta and Auth0 customers and then looking for strategic ways to integrate the platforms once the deal closes. One of those might be sharing the data each platform can generate about treats and potential hacks to better protect users, McKinnon said.
Auth0's growth also compliments Okta's, McKinnon said. Okta reported earnings Wednesday that showed its fourth quarter revenue grew 40% from a year prior. Auth0 is growing over 50% and is expected to bring in over 200 million in annual recurring revenue by the end of this year. The deal is expected to close mid year after going through regulatory approval.
Bringing Auth0 and Okta together makes the joint entity a stronger competitor, McKinnon said:
"Okta plus Auth0 is going to solve all my identity needs," he said. "That's the vision."
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