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On Thursday, Canaccord Genuity adjusted its outlook on Okta, Inc. (NASDAQ:OKTA), a leading identity management company. The firm reduced the stock's price target to $90 from the previous $95 while maintaining a Hold rating.
This adjustment came after Okta announced its second-quarter results, which surpassed both Canaccord's and the consensus estimates. However, the company provided guidance for the third quarter, indicating a deceleration in cRPO growth to 9%.
The company also modestly increased its fiscal 2025 revenue growth forecast to 13% from 12%. Despite these positive aspects, Okta's management pointed to several macroeconomic factors impacting their guidance.
These include the rationalization of spending, difficulties in expanding customer seats, a shift towards upselling rather than acquiring new business, and a particular weakness in the small and medium-sized business (SMB) sector. Okta anticipates these challenges to continue into the latter half of the year.
Canaccord Genuity acknowledges Okta's potential as a long-term player in the Zero Trust security space, given its status as a leading innovator and consolidator within the substantial $80 billion total addressable market for Identity Security. However, due to recent shifts in go-to-market (GTM) strategies and a tough macroeconomic climate leading to fewer new customer additions and a challenging upsell environment, the firm has decided to remain neutral. The company's dollar-based net retention rate (DBNR) has decreased to 110%.
The revised price target of $90 is based on an estimated 5.5 times enterprise value to sales ratio on Canaccord's 2025 revenue estimate. Canaccord Genuity suggests that the forthcoming quarters will be a transitional phase for Okta, and it will require time to determine whether operational challenges can consistently meet the rule of 40 metrics—a benchmark for growth and profitability.
With Okta's fiscal 2025 guidance implying a rule of 36, the firm expects the stock to trade at a discount to companies that meet or exceed the rule of 40 and more in line with the broader market, despite signs of improving profitability.
In other recent news, Okta, Inc. has experienced several adjustments in its stock outlook following its second quarter results for fiscal year 2025. Despite surpassing analyst expectations and raising its revenue and profit forecasts, Truist Securities reduced Okta's price target to $95.
Similarly, Baird cut the price target to $105 but maintained an Outperform rating. Scotiabank also lowered its price target to $92 due to growth concerns, while TD Cowen maintained a steady price target of $110. Wells Fargo reduced the price target to $90, citing a weak outlook.
Okta's recent earnings report revealed a 16% year-over-year revenue increase to $646 million, slightly surpassing consensus estimates. Subscription revenue was up by 17%, and the company's calculated remaining performance obligations (cRPO) exceeded expectations at $1,995 million, a 13% year-on-year rise. Despite these strong results, Okta's third-quarter cRPO guidance fell short of projections, and its market penetration showed signs of deceleration.
Evercore ISI initiated coverage on Okta with an Outperform rating and a price target of $122.00, acknowledging the company's strong performance amidst potential macroeconomic pressures.
Despite the challenges, Okta continues to penetrate into the Global 2000 companies, bolstered by partnerships with Global System Integrators. The company is also launching new initiatives such as Identity Security Posture Management and Identity Threat Protection, which are expected to open up additional growth opportunities.
InvestingPro Insights
As Okta, Inc. navigates a challenging economic environment with a focus on long-term growth in the Zero Trust security space, investors may find it useful to consider some key metrics and insights from InvestingPro. The company holds a stronger cash position than debt on its balance sheet, which is a positive indicator of financial health. Moreover, analysts predict Okta will become profitable this year, which could signal a turning point for the company that has not been profitable over the last twelve months.
InvestingPro data shows Okta's market capitalization stands at $16.24 billion, with a revenue growth of 20.45% over the last twelve months as of Q1 2025. This growth is substantial and indicates an upward trajectory in revenue, aligning with the company's increased fiscal 2025 revenue growth forecast. While the company's P/E ratio is currently negative at -57.75, reflecting its lack of profitability, the expected return to profitability could lead to a reevaluation of this metric. In terms of stock performance, Okta has seen a 34.34% return over the past year, which is a strong indication of investor confidence despite recent market volatility.
For those considering investing in Okta, there are additional InvestingPro Tips available that delve deeper into the company's financials and forecasts. These tips can provide further guidance on whether Okta's current valuation and future prospects make it a suitable addition to an investment portfolio.
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