What Happened:
Shares of identity management software maker Okta (OKTA) jumped 14.7% in the morning session after 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, this quarter's results were strong, and shareholders should feel optimistic. 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."
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What is the market telling us:
Okta's shares are very volatile and over the last year have had 25 moves greater than 5%. But moves this big are very rare even for Okta and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 17 days ago, when the stock gained 5.06% on the news that the company received a double upgrade from Goldman Sachs analyst Gabriela Borges, who raised the rating from Sell to Buy and increased the price target from $77 to $91. The price target implied a potential 24% upside from where shares were traded before the upgrade. Borges emphasized the appealing risk-to-reward ratio and envisaged a possible resurgence in Okta's calculated remaining performance obligation ( cRPO - a leading indicator of revenue) and (annual recurring revenue) ARR, predicting a rise back to the 15%-20% range from its earlier 10-15% status. This anticipated progress is attributed to several factors, including "1) Okta anniversaries headwinds in its Customer IAM (Identity and Access Management) business tied to the merging of its organic and acquired product portfolios; 2) The Workforce segment stabilizes post go to market changes and a headwind from macro; 3) Okta ramps on cross-sell tied to new product cycles such as IGA (Identity Governance and Administration)and PAM (Privileged Access Management)."
Okta is up 20.3% since the beginning of the year, and at $83.49 per share it is trading close to its 52-week high of $91.40 from August 2022. Investors who bought $1,000 worth of Okta's shares 5 years ago would now be looking at an investment worth $1,350.
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