Okta (NASDAQ: OKTA) has been one of the top-performing stocks in the equity markets ever since it went public in 2017. Okta IPO’ed in April 2017 and has gained over 960% in just over four years. Comparatively, the S&P 500 and the tech-heavy NASDAQ have returned 102% and 181% respectively in this period.
However past returns don’t matter much to current investors. Let’s take a look to see if Okta stock should be on your buying radar right now.
An overview
Okta is a technology company that uses cloud-based software to manage the digital access rights of companies. It provides an identity management platform for enterprises as well as SMEs in the U.S. and other international markets. The Okta Identity Cloud offers a suite of products to manage and secure identities that includes a cloud-based system to store and secure user, application as well as device profiles in an organization.
Further, the Single Sign-On allows users to access applications in the cloud or on-premise from several devices with a single entry of their user credentials. Okta also provides multi-factor authentication which is an additional layer of security for cloud, mobile, and web applications. Finally, its API Access Management enables enterprises to secure API’s.
Recent quarterly results
In its first quarter of fiscal 2022 (ended in April), Okta reported revenue of $251 million, a year-over-year growth of 37%. It was higher than analyst estimates of $238.3 million. Okta’s net retention rate stood at 120% which suggests existing customers increased their spending by 20% on average. Its customer base grew by 27% year over year to 10,650. The company confirmed that RPOs (remaining performance obligations) which is a measurement of sales backlog rose 52% to almost $1.9 billion.
Okta reported an adjusted loss per share of $0.10 which was higher than its loss of $0.06 in the year-ago period but much better than consensus estimates of a loss of $0.20 per share. The company attributed its widening losses to the integration of Auth0. Okta’s free cash flow stood at a record $53 million, accounting for 21% of sales, indicating it is profitable on a cash basis.
In Okta’s press release, company CEO Todd McKinnon said, “With the closing of the Auth0 acquisition earlier this month, we are further enhancing Okta's market-leading identity platform, enabling us to provide even more choice and unprecedented innovation to customers and developers. Together, we'll capture more of the massive $80 billion identity market opportunity even faster."
Despite its impressive numbers, Okta stock fell by 11% after its quarterly results as its soft guidance unimpressed investors. In the current quarter, Okta forecasts an adjusted loss per share between $0.35 and $0.36, compared to a loss of $0.11 per share estimated by Wall Street. For fiscal 2022, Okta expects an adjusted loss per share between $1.13 and $1.16 compared to consensus estimates of a loss of $0.44 per share.
What next for Okta investors?
The recent pullback provides investors an opportunity to buy the dip in Okta stock that’s trading 14% below all-time highs. Investors should note that Okta generally provides conservative guidance and its bottom-line may well be better than forecasts.
Okta expects sales to rise at a compound annual growth rate of 35% to touch $4 billion by 2026. It also forecasts a free cash flow margin of 20%.
Okta is part of a market that’s expanding at a robust pace. Its total addressable market has grown from $18 billion in 2017 to $80 billion right now. Its $6.5 billion acquisition of customer identity management specialist – Auth0 will help Okta gain traction and drive top-line growth further, making it an enviable growth stock at its current price.
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