Shares of Okta (OKTA) have seen an 18% increase since delivering solid fiscal Q4 (Jan.) numbers in late February. As of late May, the stock price was at $102.96, up 13.7% year-to-date, outperforming the Nasdaq Composite’s gain of 11.1%. Despite a security breach seven months ago, Okta has taken steps to enhance security, including changing access provisioning, data retention policies, and requiring multi-factor authentication for protected actions.
Investors were concerned about the impact of the breach on Okta’s business leading up to the FQ4 report earlier this year. However, Okta surprised to the upside with total revenue increasing by 19% to $605 million, surpassing the consensus estimate by 3%. The company also signed a record number of large contracts with $1 million+ in annual recurring revenue. Okta’s total customer count rose by 8% to 18,950, with the number of large customers with annual contract value of more than $100,000 increasing by 14%.
During the earnings call, Okta CFO Brett Tighe stated that the security incident had minimal impact on the company’s financial results. Okta experienced a strong cross-sell motion and saw an increase in average contract duration. The company’s total RPO rose by 13% to $3.385 billion, with current RPO growing by 16% to $1.952 billion. For FQ1, Okta provided revenue guidance above consensus, projecting growth of 16-17%.
Despite the security breach, Okta’s FY’25 total revenue outlook suggests modest growth of 10-11%, which some attribute to potential pressure on renewals due to the breach. However, at the Morgan Stanley tech conference in March, Tighe noted that the renewals risk was already considered in the FY’25 revenue guidance. It is possible that Okta may not face significant backlash in renewals, leading to an overly conservative revenue outlook for FY’25.
Big institutional buyers such as Sands Capital, Voya Investment Management, and Soros Fund Management are investing in Okta, counting on the company’s security improvements to ease customer concerns. With catalysts like sales force productivity improvements and large deal momentum, there is optimism for Okta’s growth potential in the $80-billion market for identity and access management. At recent prices, Okta’s enterprise value is 6.5 times the FY’25 consensus revenue estimate, indicating potential for accelerated growth in FY’26.
