On Monday, Citi adjusted its outlook on Okta, Inc. (NASDAQ:OKTA), a prominent identity management company, reducing the price target to $90 from the previous $110, while keeping a Buy rating on the stock.
The revision comes as Okta introduces several new products and advancements within its portfolio, including a significant identity security standard called IPSIE. This initiative, a partnership with competitors and conceptually similar to DDOG/DT's OpenTelemetry, aims to uniformly integrate identity security across Software as a Service (SaaS) platforms, a move seen as expanding the total addressable market.
The company has also made a strategic pivot by reinvesting in its home-grown Customer Identity Solution, which is now detailed with a separate roadmap from Auth0, in response to customer feedback that showed reluctance to migrate to cloud-based identity solutions.
This decision was highlighted during Okta's investor briefing, where additional insights into business trends were shared. These trends include growth levers, the timing of macroeconomic headwinds, go-to-market strategies, reinvestment postures, and displacements in Okta Identity Governance (OIG).
Okta's CEO acknowledged the urgency for theoretical growth recovery inputs to deliver tangible results, as investor patience is starting to wane. Citi's analysis reflects a "stable-but-not-inflecting" impression of Okta's performance.
The firm's revised outlook is also influenced by field checks that have yielded mixed results: positive feedback on Okta's competitive positioning and the potential of new products, but negative views on spending and wallet share, capping near-term upside prospects.
In light of these developments, Citi has tweaked its estimates for Okta's earnings and price target. The firm recognizes the enthusiasm for growth recovery due to the building product cycle but also notes the counterbalance of sluggish execution and a "show-me" investment case.
Okta's valuation below 20 times enterprise value to free cash flow (EV/FCF) is seen as attractive, yet the need for improved execution remains a key factor for investors. Citi reaffirms a Neutral/H rating, presenting detailed product announcements, investor Q&A, and proprietary checks in its analysis.
In other recent news, Okta Inc . revealed a 16% year-over-year revenue increase to $646 million, largely due to a 17% rise in subscription revenue. However, Okta's third-quarter calculated remaining performance obligations (cRPO) guidance fell short of projections, leading to several financial adjustments.
This development prompted various analyst firms to adjust their outlook on Okta. Canaccord Genuity, for instance, lowered its price target for Okta shares to $82.00, while TD Cowen maintained its Hold rating with a consistent price target of $110.00.
Piper Sandler, on the other hand, adjusted its outlook on Okta, lowering its price target to $85.00, and RBC Capital Markets reduced its price target for Okta to $101.00. These adjustments followed Okta's recent Oktane 2024 conference, where the company showcased new product innovations and discussed its growth strategy.
These are the recent developments regarding Okta.
InvestingPro Insights
To complement Citi's analysis of Okta, Inc. (NASDAQ:OKTA), recent data from InvestingPro provides additional context for investors. Despite the reduced price target, Okta's financial health shows some positive indicators. An InvestingPro Tip highlights that Okta holds more cash than debt on its balance sheet, suggesting a strong liquidity position. This aligns with another tip indicating that Okta's liquid assets exceed short-term obligations, which could provide flexibility as the company navigates its product transitions and market challenges.
InvestingPro data reveals that Okta's revenue for the last twelve months as of Q2 2023 stood at $2.45 billion, with a robust revenue growth of 18.74%. This growth, coupled with an impressive gross profit margin of 75.82%, underscores the company's ability to generate substantial returns from its sales, which is crucial as it invests in new products and standards like IPSIE.
While Okta was not profitable over the last twelve months, an InvestingPro Tip suggests that analysts predict the company will be profitable this year. This expectation, along with the fact that 31 analysts have revised their earnings upwards for the upcoming period, indicates a potentially improving financial outlook that could support Citi's maintained Buy rating.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide deeper insights into Okta's financial position and future prospects.
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