In this podcast, Motley Fool analyst David Meier and host Mary Long discuss:
- Okta's earnings and the future of logging in.
- Salesforce's AI-driven future.
- Marc Benioff's ability to turn vision into performance.
Then, Motley Fool retirement expert Robert Brokamp and host Alison Southwick talk about how to avoid outliving your money in retirement.
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To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our beginner's guide to investing in stocks. A full transcript follows the video.
This video was recorded on Dec. 04, 2024.
Mary Long: The word of the day is Agentforce. You're listening to Motley Fool Money. I'm Mary Long, joined today by David Meier. David, thanks for being here. How you doing on this Wednesday morning?
David Meier: Hi, Mary. Thanks for having me. I'm doing extremely well this morning.
Mary Long: I am so glad to hear that you're doing extremely well. Another company that's doing pretty well. Not that you're a company. That wasn't the agreement that we want to kick the show off with. [laughs] But there I am trying to make a smooth transition. But a company that's also doing extremely well, might be the cybersecurity company Okta. They dropped their third quarter results yesterday evening.
For anybody unfamiliar, this is an identification management company. It specializes in multifactor authentication and it helps companies protect employee access to applications or devices. So I come into contact with Okta nearly every day. [laughs] When I log on to, say, Google Drive, on my laptop, Okta sends me a notification on my phone to say, hey, is it really you? We call this a cybersecurity company, but it strikes me as slightly different than what, say, CrowdStrike is doing. So who are Okta's direct competitors in this space?
David Meier: So you're right in that Okta is a little different than most because it's in a niche. But companies like Palo Alto, they actually are a competitor. They have, along with companies like Microsoft and Oracle and other larger companies who take a platform approach, they do offer their own identity management solutions, but identity management is just one piece in their portfolio, whereas Okta, along with competitors like Ping Identity, which was recently purchased by private equity firm Toma Bravo, or a company like CyberArk, they're specifically focused on everything associated with identity management, both from coming into the network and as well as once you're in the network.
Mary Long: I'm going to take us on a slight sidebar, because I mentioned my own relationship with Okta. I love the security of this product, but I got to say, I lose a little bit of my sanity each time I have to walk into the other room to get my phone, which I intentionally placed away so as to not distract myself just to open up a Google Doc. Is this the future of everything? Should I just get a grip, and brace myself for multi factor authentication being everywhere that it's not already?
David Meier: Sorry, I'm giggling because I've experienced the same thing, so I hear you. It definitely can be annoying. But right now, it's pretty effective. The company wants to know that you are, in fact, you, and this is one of the best ways they can do it is using your phone. But there's something called adaptive multifactor authentication that Okta and others are working on. What it does is it tries to collect data about the traits that you have associated with logging in. What devices? What are your login patterns? Where are you? They try to take a lot of additional information in order to make the process easier to use more efficient, but it still has to be safe. That is the most important thing. We don't want to let a bad actor in. So right now, it's hard to it's hard to beat two factor authentication, go to your phone, say type in the pass code and say it's you in order to give you, the human that they want to know is you, access. But I will just let you know, companies are working on this to try to take that process and move it behind the scenes in order to verify that you so you can leave your phone in the other room.
Mary Long: There we go. Love that. [laughs] The future is bright. Big news for Okta this morning is that the company achieved its first quarter of GAAP profitability. So they brought in about $16 million of net income. That's compared to a net loss of $81 million in the same quarter of last year. What does Okta's path to consistent profitability look like from here on out?
David Meier: So that's an awesome question because that's what we look for in all of our companies. We want to see them get to scale and have that scale work for them in terms of more profits and cash flow. So Okta has taken an active stance in getting their costs more in line with their revenue over the past year or so. Like many software companies, coming out of the pandemic, they actually saw slower growth, and one of the things that any company has to do is they have to balance their expenses with their level of revenue.
So Okta has been doing that and that work seems to be done, which is great because in Okta's case, revenue is actually picking up again, as well as retention. So if management is right and in their conference call, they mentioned that the opportunity to increase the number of greater than one million dollar accounts is going up, that's a good sign that quarterly profits and cash flow should continue to stay positive and trend upward, because higher revenue like that tends to be across a better cost structure tends to give you the margins you're looking for that are associated with scale.
Mary Long: This question of retention and large customers came up a bit on the call. Okta has seen some challenges on the customer addition front. They only added about 200 net customers during the quarter. Management attributed this largely to the macro climate, saying, hey, businesses are being more conservative about software spending. In my mind, the part of the bull case for any cybersecurity company is, hey, this is not really something that you can afford to cut back on. What does Okta have to do to make that argument to potential customers to say, hey, identity management is not something that you can afford to cut back on or not pay for at all?
David Meier: Are you in the running for an Okta Salesforce representative? Because literally you just made the case [laughs] in your question, in all seriousness. The people and devices that are outside the network are vulnerabilities. Those are where the attack vectors tend to head toward. So it really is a matter of Okta has to make the case that it can properly identify both the person and the device before you get into the network. Then once you're in the network, they also make sure that you can only access the things that you're allowed to access. So, one thing that is very popular is to get for a hacker is to find a vulnerability on the outside and then exploit that all the way through the system because there were no protections inside. So the case really is we prevent people from getting in, but should you get in, we prevent you from getting where you're not allowed to go. Right now, Okta is very good at that. That's the main focus of their business, so it's a better sell to say, look, we do this better than someone can do it who just has this as a part of their platform. So come to Okta and we'll protect you, your people, and your data.
Mary Long: CEO Todd McKinnon talked a lot about Okta's partner ecosystem on the call. What is that?
David Meier: A great question. So lots of software companies partner with consultants and resellers that act as a compliment to their internal sales teams. So essentially, what the partner ecosystem does is it expands their access to customers. The profit structure is a little different, obviously, because you have to pay someone who's outside of your company to basically sell on your behalf. But it's great because essentially, it's marketing. In addition, the partners do provide aftermarket service to those accounts that they bring to the company. So essentially, it's a third party sales force.
Mary Long: What a beautiful setup, David, because our next story for the day.
David Meier: I'm so glad you noticed how well I trends. I've learned from you.
Mary Long: Really, talk about smooth transitions. Because the next story that we got on tap for today has to do with, guess what? Salesforce. Their CEO Marc Benioff mentioned on the call today that he is back from a birthday scuba diving trip to Fakarava atoll in French Polynesia. While there, he suffered an injury that we'll get into a bit more because, unsurprisingly, Benioff had a way to weave that injury and his recovery from that injury to AI and what sales force is doing there. But first off, David, is Fakarava on your travel bucket list? I never heard of this space before.
David Meier: So do they have any golf courses around the islands? Because if so, I'm in. [laughs].
Mary Long: Scuba diving didn't quite do it for you?
David Meier: I'm absolutely willing to try, but it's not the Number 1 thing that I do on vacation.
Mary Long: [laughs] So while this appears that it might be the Number 1 thing that Benioff does on vacation because while scuba diving there, he ruptured his Achilles. But fret not, he told investors that he experienced great care while back home and is now on the path to recovery, though, it sounds like he's still in a boot. Again, he even found a clever way to tie this whole story back to Salesforce and its latest AI offering Agent Force.
Basically, Benioff relays this pre operative call that he has with his care staff at a hospital where he's getting this treatment. The call gets him wondering about what it would have cost Salesforce to run this call with Agent Force. This so many approach of telling this personal story and weaving it back to what Salesforce is doing is very classic Benioff and it is entertaining. But how do you separate vandalism from actuality when you're listening to Benioff, sell or any other so many CEO, sell the benefits of CRM and AI?
David Meier: That is such a good question, because it's something I actually think about quite a bit, given that I tend to fish for investments in the technology ponds. Interestingly enough, we were talking about this very thing on The Morning Show this morning, which I encourage listeners to listen to, as well. So actually, you don't separate them. As investors, what you need to do is actually recognize the type of leader that you're dealing with in terms of the CEO. Benioff is absolutely a visionary. He is always looking forward. He's always crafting narratives. He loves talking about. This is where the future is going and this is what we're going to do at Salesforce. So what I want to do as an investor is I want to embrace his style. But we'll go, we'll call it the classic trust but verify. I trust that he sees this every day. He loves it. It's his passion. But then you have to look at the track record of turning that vision into performance, because at the end of the day, the narratives help, but it's performance that tends to drive stock performance. But for the most part, over the time that I've been following him, he's done just that. The reason that we can say that is because we can cross reference his visions with results that are given by the CFO every quarter.
Mary Long: It's pretty clear that Agent Force is a central part of Benioff's future vision for Salesforce. It was mentioned by my account 80 times in the earnings call the other day. Yet, this product only launched in late October. So as a refresher, what is Agent Force?
David Meier: I think it's Marvel's upcoming superhero Blockbuster in 2025, if I'm not wrong. No, seriously. Let's go to the company and see how they define it, and then we'll talk about it a little bit. So, according to Salesforce, an Agent Force agent is a proactive, autonomous application that provides specialized, always on support to employees or customers. They're equipped with the necessary business knowledge to execute tasks according to their specific role. So let's translate that from Salesforce speak into something that's more digestible. So the idea is that Agent Force is a way to create digital assistance for humans, based on whatever tasks they're trying to perform in order to help them become better workers, more productive, make better decisions, whatever it is. They act as a way to quickly get a job done such that the person using the agent can get better at their job.
Mary Long: Moving over to the financial results that came through. In this most recent quarter, revenue was up 8% year over year. Net income up 25% year over year. Where is Salesforce cutting expenses? How is it able to improve net income at such a higher rate than it is its revenue?
David Meier: CFO Amy Weaver hasn't really given much in terms of details about this, other than they're employing good expense management. Good. You're making sure your costs are somehow aligned with your revenue. That's a good thing. But if we look back, the company actually has reduced its workforce over the past year and that was necessary. Just like Okta, when their revenue growth slowed, had to align the cost structure correctly. Salesforce has had to do the same thing. The other place that I see where this is happening is, according to the financial performance over the past few years, selling general and administrative costs as a percentage of sales are dramatically down. So perhaps there have been changes in compensation associated with the sales force. There may have been more careful expenditures around marketing to get the word out about new products. But the other thing that I think is happening is that new products also seem to be carrying higher margins with them. So when you put all those things together, lower costs, higher margin products coming out, you can lever that 8% revenue growth into 25% profit growth.
Mary Long: David, I think there's one other thing from this quarter that you want to talk about. Anything else that we haven't covered yet that you want to hit before we close out?
David Meier: There is. I really would like to give a shout out to CFO Amy Weaver. She had been at Salesforce before before she joined a CFO in 2021 and when that happened, there was a worry that as she tried to bring more "discipline" to the company, she might clash with Marc Benioff. You could understand it. Benioff has been a swashbuckling pirate this whole time selling the story of Salesforce and acquiring companies and integrating them in. He's just been nonstop. We're going to build Salesforce into the biggest best software company that there is.
But personally, I think this partnership has been working fantastically and this conference call was another great example. Marc got to sell the vision of AI as the future. You mentioned it was Agent Force, which is the thing that Marc is most excited about was all he could talk about. His little part in the beginning is just littered with the word AI and Agent Force. That's what you want. He's good at that. He loves this company. Let him sell that. Amy gets to talk about how well the company is executing that vision in a financially disciplined way.
Look, there are still plenty of investments being made at Salesforce. They're making smaller acquisitions, but they are making acquisitions. They're investing in their technology platform in order to bring all this great work that they're doing to customers. Along the way, there's now tons of cash flow being generated, including cash flow that's actually being returned to shareholders. So if we think about it, it can be very difficult for a growth company to make the transition into a more mature growth company. But I think this executive team and in particular, Amy Weaver has done a great job of transforming Salesforce into the more mature growth company than it is today. I will just say, this is not an easy thing to do, so kudos to Amy and the rest of the executive team.
Mary Long: David Meier, thanks so much for coming onto Motley Fool Money and sharing these wonderful insights into some software companies with us today.
David Meier: Thank you, Mary. I really appreciate it.
Mary Long: One of the biggest questions in investing is whether you'll have enough money in retirement. Alison Southwick and Robert Brokamp discuss how you plan for one very important part of that equation.
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Alison Southwick: When you picture your retirement, do you see yourself on the links, maybe traveling the world or otherwise, just leaning back with an adult beverage and a deep sense of contentment? That sounds really nice. But do you also have a lingering fear that your future resembles an old Mother Hubbard type situation where your cupboard is bare. But somehow you have money for a dog coffin. Then, well, have you read Old Mother Hubbard lately? It gets weird. Anyway, the point is, even though we all aspire for that first scenario of a cushy retirement, being poor in old age is a common fear. According to a survey from Prudential, released in June, the majority of Americans, ages 55 and older, worry about outliving their money. When it comes to estimating the odds that your portfolio will last as long as you do, perhaps you use a calculator or hire a financial planner, one of the most important variables will be your life expectancy. The longer you expect to live, the more you'll need to have saved up before you can retire. I mean, the math just maths.
Robert Brokamp: Absolutely. The numbers will be different for each person. But someone who expects to live until age 95 will need anywhere between 35%-40% more save for retirement than someone who expects to live to just age 85. For most people, we're talking about a difference of hundreds of thousands of dollars. So it's a lot of extra saving while working and maybe more years of working before you can actually retire. So to determine how much you need to save in order to retire when you want, you just need to know when you'll die. But of course, most people don't know when that'll happen. So the best you can do is make an educated guess.
Alison Southwick: Fortunately, there are tools that provide evidence based estimates, and then you can adjust the results to account for your own fears about running out of money. One such tool is the Actuaries Longevity Illustrator, a joint creation of the American Academy of Actuaries and the Society of Actuaries. I'm glad we have both, because they are two groups who know an awful lot about how long people live. You can find the tool at longevityillustrator.org and it incorporates four factors, age, gender, smoking habits, and health assessment to estimate the likelihood that you and your spouse, if you're married, will live to certain ages.
Robert Brokamp: So let's use the tool to look at the potential longevity of a non smoking, 65-year-old married heterosexual couple in average health. So according to the tool, the average life expectancy for the male is to age 86 and for the female, it's 88. So at first glance, you might think, well, I'll just input those numbers into a retirement calculator. But you should keep a few important points in mind. So first, half of people will die sooner than those ages, but half will live longer. A couple of factors that are associated with above average longevity are higher levels of wealth and higher levels of education and that probably applies to most of the people listening to this podcast. Another factor that leads to a longer life is marriage. According to the longevity Illustrator, there's a 50% chance that one member of our average health couple will make it to age 92. So if you're married, you should definitely assume a longer life expectancy. So as you fiddle around with a tool, you'll see how other factors, such as being in poor health or being in excellent health will change your odds of living to a certain age.
Alison Southwick: Let's say you use the tool and see the results. Because there is no tool just yet that can reveal the exact timing of your demise, which number should you use to run your retirement numbers? Well, you're likely familiar with the concept of risk tolerance when it comes to your portfolio. You may have even taken quizzes that determine whether you're likely to be a conservative, moderate, or aggressive investor. But you also have a risk tolerance for the possibility of outliving your money.
Robert Brokamp: Now, in some academics call this longevity risk aversion, which is basically how much you fear running out of money in your twilight years. So if it's very high, that is, you want the possibility that you'll outlive your money to be very low, then you choose a life expectancy for which there's, like, a 10% or lower chance that you'll live to. So according to the longevity Illustrator, there's a 10% chance that one member of our average health couple will live to age 99. So you could choose that age or maybe even bump it up to 100 or higher if you're really worried about outliving your money. But the result will be when you use the calculator or see a financial planner, is that you're going to have to save a lot more before you can retire and or spend less in retirement. Now, on the other hand, perhaps you look at the results from the longevity Illustrator and see that there's roughly a one in four chance that someone could die before age 80 or so.
If you're more worried about leaving experiences and money on the table than the possibility of outliving your money, then your longevity risk aversion is low. So you may choose a lower life expectancy. But if you go that route, you just got to have a plan for how you'll change course if portfolio returns, too much spending, maybe too long living all add up to higher risk that you actually will run out of money at some point.
Alison Southwick: So people have to choose a life expectancy that feels right for them. But is there a starting point that experts recommend?
Robert Brokamp: Well, fortunately, yes, in a study published in the Journal of Financial Planning, David Blanchet, the head of Retirement research for PGMTC Solutions and he was a guest on this show back in July of 2022, he determined that adding five years to the projected life expectancy of a single person or eight years to the longest life expectancy of either member of a married couple is a reasonable assumption. He also found that just as a general starting point, the typical female male couple retiring at age 65 could use age 95 as their time horizon. Personally, this is the number that I use when I do my own retirement planning for my wife and me.
Alison Southwick: Bro, try to bring us home. What are your final thoughts on choosing an estimate for how long you'll live?
Robert Brokamp: Well, we're coming up on the end of the year and we're going to start seeing lists of famous people who passed away in 2024. It'll include people like Shannon Dougherty, De Kempe Mutombo, Tito Jackson, and Richard Simmons, God rest his energetic soul. When you see these lists, you're going to see a lot of people who, like the folks I just mentioned, died in their 70s, 60s, even 50s. When I see that, I think how tragic it would be to spend decades saving for retirement, only to not live long enough to enjoy that much of it. So personally, even though I use age 95 when analyzing my wife's and my retirement, I also assume that we're going to front-load the spending so that my wife and I have a grand old time in that first decade or so and then we're going to spend less in the last decade.
I've also began to assume that we will save less for retirement once we reach our 60s and we instead begin to use some of that money to enjoy some of the things that we were saving for retirement, but do them a little bit before we actually retire. But this also means that my wife and I are supercharging our savings until then. To build in some protection against being poor in our older ages, we plan to delay taking Social Security until age 70, because even if our portfolio dwindles to nothing, we'll still get those inflation adjusted, partially tax free social security checks from Uncle Sam and the longer we wait to claim the benefits, the bigger those checks will be. The bottom line here is that delaying Social Security can be some of the best so called longevity insurance that you can buy.
Mary Long: As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally recommend to friends like you. I'm Mary Long, thanks for listening. We'll see you tomorrow.