What Happened:
Shares of identity management software maker Okta (OKTA) fell 7.93% in the morning session after Chief Security Officer, David Bradbury, notified the public in a blog post on October 20, 2023, that the company recently identified a security incident in which an attacker gained access to its support case management system using a stolen credential. The attacker was able to "view files uploaded by certain Okta customers" which are part of recent support cases. He clarified that the Okta support case management system is separate from the production Okta service, which is fully operational and has not been impacted. Lastly, the company noted that all affected customers have been notified.
It is important to note that Okta is a leading provider of identity and access management solutions, and its customers include some of the largest companies in the world. As a result, Okta is a valuable target for sophisticated web attackers who can leverage access to its products to infiltrate the networks and systems of its customers. This incident could lengthen sales cycles or increase churn as customers take longer to assess buying Okta products (not just support case management) or leave the platform for a competitor, which would negatively impact the company's revenues.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Okta? Access our full analysis report here, it's free.
What is the market telling us:
Okta's shares are very volatile and over the last year have had 20 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 about two 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, 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 down 0.12% since the beginning of the year, and at $69.14 per share it is trading 23.9% 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 $1,210.
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