Why Are Okta (OKTA) Shares Soaring Today

Radek Strnad /
2024/02/29 12:28 pm EST

What Happened:

Shares of identity management software maker Okta (OKTA) jumped 27.7% in the pre-market session after the company reported an impressive "beat and raised quarter". Fourth quarter results outperformed Wall Street's revenue estimates, alongside strong free cash flow. Okta also provided optimistic revenue guidance for the next quarter, which exceeded analysts' expectations. Also, the company slightly raised its FY'25 outlook and now expects revenue growth of 10% to 11%, a non-GAAP operating margin of 18% to 19%, and a free cash flow margin of approximately 21%. Management highlighted the conservatism baked into the guidance given the "stable but still challenging macro environment." 

Moving on, the outperformance suggests that the recent security incident, which was reported in October 2023 and affected some of the company's products, had minimal impact on its financial position, reassuring investors. Also, the company is focused on optimizing its cost structure following the recent layoff, which affected 400 positions. Going forward, Okta is focused on growing its headcount in lower-cost regions such as India and Poland. Overall, this was a strong quarter for the company, providing more reasons for investors to stay positive.

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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%. 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 biggest move we wrote about over the last year was 6 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, 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."

Okta is up 20.8% since the beginning of the year. Investors who bought $1,000 worth of Okta's shares 5 years ago would now be looking at an investment worth $1,238.

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