Okta (OKTA) Shares Skyrocket, What You Need To Know

Petr Huřťák /
2023/12/01 1:47 pm EST

What Happened:

Shares of identity management software maker Okta (OKTA) jumped 5.9% in the afternoon session after stocks rallied as traders continued to expect more accommodating policy decisions from the Fed in the coming months. Fed Chair Jerome Powell said in a speech, "It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease..." However, the market seems to be shrugging off these comments for now despite them coming from the Fed Chair. The Federal Reserve has been raising interest rates to combat inflation, and the latest data showed that their efforts may be paying off. As a result, there seems to be increased optimism in the market that because inflation is stabilizing, interest rates could stabilize or even move lower. As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.

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What is the market telling us:

Okta's shares are very volatile and over the last year have had 14 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 14.7% on the news that the company reported a clean "beat and raise" quarter against somewhat low expectations. Revenue, non-GAAP operating profit, and EPS all came in ahead of Wall Street's expectations. cRPO (current remaining performance obligations, a leading indicator for revenue) grew 18% year on year, higher than even the high end of the company's previous guidance, which was 15%. Management made positive commentary about the macro and about sales execution, which has not been the case for some other software companies. The forecast for the rest of the year was also strong. Next quarter's revenue and non-GAAP operating profit guidance came in higher than Wall Street's estimates. Similarly, full year guidance was raised across the board. Overall, the results were strong. 

Following the results, Evercore analyst Peter Levine upgraded the stock's rating from Underperform (Sell) to In-line (Hold) and raised the price target from $65 to $75. Levine added that "Evercore believes the risk/reward is more balanced at these levels given the business seems to be stabilizing."

Okta is up 2.1% since the beginning of the year, but at $70.95 per share it is still trading 21.9% below its 52-week high of $90.90 from May 2023. Investors who bought $1,000 worth of Okta's shares 5 years ago would now be looking at an investment worth $1,094.

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