Citi has made an adjustment to the price target for Okta, Inc (NASDAQ: NASDAQ:OKTA), bringing it down to $110 from the previous $115, while keeping a Neutral rating on the stock.
The decision comes after evaluating the company's recent performance and future outlook.
Okta's recent financial results have surpassed modest revenue expectations, with a 13% year-over-year increase in calculated Remaining Performance Obligations, consistent with the previous quarter, and a revenue beat of 16% year-over-year.
Additionally, the company has been successful in achieving operational expenditure efficiencies, marking its best-ever operating margin at 23% and expanding for five consecutive quarters.
Despite these positives, Citi notes that Okta's forward momentum is challenged by several factors. The company faces a less than 10% outlook for future performance obligations, marking the third consecutive deceleration.
The macroeconomic environment continues to affect new customer acquisition, particularly among small and medium-sized businesses. Furthermore, pressures on net retention rate due to lowered seat growth and monthly active user downsell are still evident, as the company searches for a baseline in this metric.
The full impact of the security incident from October 2023 remains unclear, given Okta's average contract duration of two and a half years.
Citi also points out that while Okta's broadened solution offerings hold promise for exciting product cycles, the gradual attachment and uptake of new products seem to be more about retaining existing wallet share rather than expanding it. This, in turn, limits the potential for a structural acceleration in the business.
Taking into account the current growth trajectory, which is stuck in the low teens, and a plateau in operating and free cash flow profitability expansion, Citi believes the stock is fairly valued.
In other recent news, Okta reported a strong start to fiscal year 2025, with record profitability and cash flow largely attributed to operational efficiencies, large customer acquisitions, and public sector growth.
Following the announcement of these results, Mizuho Securities lowered its price target for Okta from $110.00 to $104.00, citing mixed results and competitive threats. In contrast, Guggenheim reiterated its Buy rating on Okta, expecting the company's revenue and calculated remaining performance obligations (cRPO) to exceed consensus estimates.
BTIG maintained its Buy rating on Okta, noting potential improvements in demand for Okta's services, while Jefferies maintained a Hold rating, awaiting clear signs of a growth inflection. JPMorgan maintained its Neutral rating on Okta shares, acknowledging the company's solid positioning in Identity and Access Management markets.
InvestingPro Insights
As investors consider Citi's revised price target for Okta, Inc (NASDAQ:OKTA), the company's financial health and future prospects remain a focal point. According to InvestingPro, Okta holds more cash than debt on its balance sheet, which can be a sign of financial stability. Additionally, despite being unprofitable over the last twelve months, analysts predict Okta will be profitable this year, aligning with Citi's view on the company's potential for operational efficiencies.
InvestingPro data shows Okta with a market capitalization of $16.24 billion and a high revenue growth of over 20% in the last twelve months as of Q1 2023. The company's gross profit margin stands strong at 75.15%, indicating its ability to retain a significant portion of revenue after accounting for the cost of goods sold. These metrics underscore Okta's solid revenue generation and potential for future profitability, despite its negative operating income margin of -14.99% in the same period.
For investors looking for a deeper dive into Okta's financials and performance, InvestingPro offers additional tips, such as the company's liquid assets exceeding short-term obligations and a high return over the last decade. These insights, along with many others, are available to help investors make more informed decisions. There are 6 more InvestingPro Tips available for Okta, which can be found at https://www.investing.com/pro/OKTA.
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