Okta (NASDAQ:OKTA) stock fell in 2022 due to sales challenges and a contentious acquisition, but it reset expectations, according to some analysts, setting the stage for a sustained rebound.
Okta stock rose 1% today to 76.33 on the stock market. After a nearly 70% drop last year, the cybersecurity stock consolidated in early 2023. Out of that consolidation, the entry point for OKTA stock was 74.28. The stock is trading in a buy range that extends to 77.99.
Furthermore, Okta stock has been trading near its 200-day moving average.
Microsoft Is a Threat to OKTA Stock
Based in San Francisco, Okta is a company that specializes in identity verification. Its software keeps track of and manages privileged accounts. Employees or management with administrative access to company computer systems are frequently targeted by hackers.
Okta has increased its market share in the identity security market. However, Microsoft has increased its competition (MSFT).
Okta made a significant acquisition in March 2021. It agreed to buy Auth0 in an all-stock deal worth $6.5 billion for the Bellevue, Wash.-based company. Auth0 sells tools that assist software developers in incorporating identity authentication capabilities into their applications.
Analysts say it was difficult to integrate Auth0’s business into Okta. At the same time, Okta encountered challenges when selling to large corporations in the enterprise market.
Okta’s chief revenue officer and president of worldwide field operations both recently left the company.
Okta has reduced its revenue growth forecast for fiscal 2024, which begins later this year, to a range of 16% to 17%.
Furthermore, some analysts argue that Okta’s high valuation makes it an attractive acquisition target.
Okta Stock: Restructuring Strategy
“We continue to believe OKTA is a good second-half rebound idea as estimates stabilize and potentially reaccelerate,” RBC Capital analyst Matthew Hedberg wrote in a client note.
Okta recently announced a restructuring strategy to cut operating costs. It laid off 300 workers, accounting for about 5% of its workforce. Okta also anticipates $15 million in restructuring charges in the fourth quarter.
Okta (NASDAQ:OKTA) will also report fourth-quarter earnings on March 1.
Needham analyst Alex Henderson stated in a client note: “Okta’s staff churn (in 2022) was alarmingly high, at well over 20% overall and 30% or higher at Auth0. Okta churn has returned to historical levels as businesses have stabilised and the economy has slowed. This, we believe, will be critical in allowing Okta to re-accelerate and improve profitability.”
OKTA stock had risen 12% year to date as of Monday’s close.
Meanwhile, the cybersecurity firm’s Relative Strength Rating is 42 out of a possible 99.
Furthermore, OKTA has an Accumulation/Distribution Rating of A. The rating takes into account price and volume changes in a stock over the previous 13 weeks of trading.
The rating, which ranges from A+ to E, assesses institutional buying and selling in a stock. A+ denotes heavy institutional buying, while E denotes heavy selling. Consider the C grade to be neutral.
Goldman Sachs Initiates Coverage on Okta with Sell Rating
Some analysts are skeptical of Okta’s (NASDAQ:OKTA) comeback. For example, Goldman Sachs analyst Gabriela Borges initiated sell coverage of Okta stock today.
“We expect Okta’s pace of share gain in identity access management to slow, given Microsoft is becoming slightly more competitive and the identity cloud upgrade cycle being further along,” Borges wrote in a note.
Bank of America analyst Madeline Brooks initiated coverage of OKTA stock on Monday with an underperform rating.
“We see elevated risks of slow growth and limited margin upside resulting from intense competition with Microsoft, pricing erosion, channel conflicts and other structural challenges,” said Brooks in a note.
Meanwhile, Microsoft offers discounted prices on a variety of cybersecurity products to businesses.
According to analysts, the software behemoth’s security business now generates $15 billion in annual revenue. It expands by 40% per year. Microsoft also bundles products through its Azure cloud computing business and its Office 365 platform.
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