Like most software program shares did in 2022, Oct (OCT -1.14%) upset buyers.
With the yr nearly over, shares of Okta, the cloud identification firm that helps workers and prospects log in and keep linked to the apps they want, are buying and selling down 70% yr thus far, spoiling what has been an ideal run for the inventory since its IPO in 2017.
Falling valuations within the software program sector and macro headwinds weighed on the inventory. Shares additionally took a success in September on the corporate’s personal admission of issues integrating the gross sales power from Auth0, the client identification firm it acquired final Might. Because of these points, it pulled its long-term steering, which had known as for the corporate to achieve $4 billion in income by fiscal 2026 (which led to January 2026).
All these points mixed to make a forgettable yr for Okta. Will 2023 convey higher information for buyers?
Macro woes however a purpose to be hopeful
Going into the brand new yr, buyers appear more and more pessimistic in regards to the inventory market and the software program sector. Shares saved declining by way of December after the Federal Reserve forecasted extra charge hikes subsequent yr, and Okta and its friends are already reporting slowing buyer demand and longer gross sales cycles as companies put together for a recession.
The corporate’s steering for the fourth quarter appears to replicate that. Administration known as for income progress of 27% to twenty-eight%, down from 37% progress within the third quarter, despite the fact that Okta’s steering has traditionally been conservative. In preliminary steering for subsequent yr, it forecast income progress of simply 16% to 17% because of macro challenges, a transition in its go-to-market technique as its chief income officer steps down, and its integration challenges with Auth0.
Nonetheless, there may be purpose to be eager for Okta’s efficiency. First, the corporate took important steps towards bettering profitability because it reported break-even adjusted earnings per share (EPS) in comparison with expectations of a loss per share of $0.24. It known as for adjusted EPS of $0.09 to $0.10 within the fourth quarter, a lot better than estimates. It additionally expects to proceed rising earnings and money movement.
The corporate additionally took steps to increase its product lineup and addressable market, going into adjoining markets similar to identification governance administration (IGA) and privileged entry administration (PAM). It is already rolled out IGA and expects to introduce PAM by the tip of the following yr. With these merchandise, the corporate will faucet into an $80 billion addressable market. There are additionally indicators that some firms are ready for the PAM launch to enroll in Okta’s cloud suite, that means progress might speed up as soon as PAM rolls out.
Lastly, the corporate can also be seeing robust progress within the public sector. Income is up 65% by way of the primary three quarters in comparison with the identical interval a yr in the past. The rise is attributed to Okta lately gaining IL-4 certification, which permits it to promote to the Division of Protection. It additionally expects to quickly get FedRAMP Excessive authorization, which can open up extra doorways within the public sector.
Is Okta a purchase?
Regardless of the anticipated headwinds in 2023, Okta nonetheless seems to be well-positioned to proceed to develop because the main unbiased cloud identification platform. It is penetrating a big, evolving addressable market, and the corporate ought to have an extended progress alternative in entrance of it, which might speed up as soon as it releases PAM. Okta has additionally demonstrated it has extra management of its earnings than buyers thought, and it is anticipated to proceed bettering its backside line.
Presently, Okta inventory trades at a price-to-sales ratio of simply 6, making the inventory look low-cost relative to its long-term progress potential. Whereas Okta inventory shall be topic to the macro challenges subsequent yr that the remainder of the market is dealing with, the present worth seems to be like entry level for long-term buyers who can tolerate volatility over the following yr.