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In today's digital-first world, where businesses and individuals increasingly rely on interconnected systems, the identity and access management (IAM) industry has become indispensable. Okta (OKTA), a pioneer in this field, has become a necessary provider for many companies.
On Dec. 3, Okta soared past third-quarter earnings estimates and offered bullish guidance. Investors took notice, sending shares surging as the company reaffirmed its dominance in the space.
As digital reliance grows, Okta’s role becomes even more vital. But with the stock riding high, will its momentum carry into 2025, or is caution the smarter play for investors? Let's take a closer look.
About Okta Stock
Okta revolutionizes identity management globally. Founded in 2009 and headquartered in San Francisco, it empowers secure, seamless access to applications across devices. From single sign-on (SSO) to adaptive multi-factor authentication, its tools defend against cyber threats while streamlining user experiences.
Okta's cloud-based universal directory and identity governance solutions ensure secure data flow, while innovations like its API Access Management help secure APIs.
Valued at a market capitalization of $14.5 billion, shares of Okta have edged up 1% over the past 52 weeks, rallying 13.4% over the past three months.
From a valuation standpoint, Okta trades at 6.35 times sales, trading below its historical average of 18.83x.
Okta Surges on Q3 Earnings Beat
Okta’s Q3 earnings delivered a powerful punch, sending its stock up 6%. The identity management giant's revenue grew 14% year-over-year to $665 million, with subscriptions driving most of that growth at $651 million. Smart investments in its partner ecosystem, public sector, and large customers are paying off, fueling the surge.
Meanwhile, non-GAAP net income per share soared 52% to $0.67, beating expectations, while operating cash flow hit $159 million, or 24% of revenue. Free cash flow (FCF) followed closely at $154 million, with a robust cash reserve of $2.25 billion as of Oct. 31, 2024.
The company's net dollar retention rate, a key metric reflecting revenue growth from existing customers, landed at 108%. While this marked a decline from 115% a year ago, Okta attributed the dip to cautious organizational spending, impacting workforce identity licenses and customer identity monthly active users (MAUs). Despite this, gross retention remained strong, signaling loyalty from existing customers. Moreover, Okta’s push to upsell newer solutions helped combat any dips.
Adding 150 new customers in the quarter, Okta now serves 19,450 clients, a 3% year-over-year increase. High-value clients with annual contract values (ACVs) exceeding $100,000 reached 4,705, reflecting 8% growth. Meanwhile, its remaining performance obligation (RPO) backlog, a proxy for future revenue, rose by 19% to $3.66 billion. Its current RPO (cRPO) - expected revenue within 12 months - grew by 13%, maintaining momentum.
What truly ignited the rally post-earnings was Okta’s bullish guidance. For fiscal Q1, the company anticipates revenue growth of 10% to 11%, reaching up to $669 million, with adjusted EPS between $0.73 and $0.74. It also expects a 32% non-GAAP FCF margin, showcasing operational efficiency.
Okta lifted its fiscal 2025 outlook, projecting revenue between $2.595 billion and $2.597 billion, representing 15% growth at the midpoint. Its adjusted EPS is anticipated to land between $2.75 and $2.76. The non-GAAP FCF margin is expected to be approximately 25%. Looking further ahead to fiscal 2026, revenue is expected to climb modestly by just 7% between $2.77 billion and $2.78 billion.
Analysts tracking OKTA predict EPS of $0.40 in fiscal 2025, up 119% annually, with the bottom line projected to surge another 52.5% to $0.61 in fiscal 2026.
What Do Analysts Expect for Okta Stock?
Investment firms stirred into action this month. For instance, on Dec. 2, Morgan Stanley upgraded OKTA from "Equal Weight" to "Overweight" and raised the price target from $92 to $97. The upgrade followed signs of stabilizing demand, reduced competitive pressures, and new product cycles gaining traction. The news sent the stock climbing over 4%, reflecting renewed confidence in Okta’s growth potential.
The firm's analyst noted improving reseller demand and a growing share relative to competitors, especially with Okta Identity Governance (OIG). With strong margins and promising product developments, Morgan Stanley sees a bright future for Okta, signaling potential for further growth and market expansion.
Meanwhile, Okta’s stellar Q3 results sparked optimism across Wall Street, with brokerage firms raising price targets. Needham boosted its target to $115, citing strong execution, large customer gains, and growing adoption of Okta's expanded product suite.
RBC Capital maintained an "Outperform" rating with a $101 target, highlighting an attractive valuation and a promising outlook into fiscal 2026. Meanwhile, Scotiabank set a $96 target with a "Sector Perform" rating, noting steady performance as pandemic-era headwinds ease.
Overall, Wall Street is optimistic about OKTA stock, with a consensus of “Moderate Buy.” Of the 37 analysts offering recommendations, 15 advise a “Strong Buy,” two suggest a “Moderate Buy,” 19 have a “Hold” rating, and the remaining one analyst advises a “Moderate Sell.”
