Evercore ISI sees potential in Okta stock despite mixed growth signals

On Thursday, Evercore ISI initiated coverage on Okta, Inc (NASDAQ:OKTA) stock with an Outperform rating and a price target of $122.00.

The firm acknowledged Okta's strong performance in the second fiscal quarter, surpassing expectations, but also pointed out that the second half revenue guidance and current remaining performance obligations (CRPO) forecast were underwhelming.

The management's strategy to accelerate growth was noted, yet current macroeconomic pressures and workforce changes are expected to continue affecting the company.

The analyst remarked on the mixed metrics, highlighting a quarter-over-quarter slip in the net retention rate to 110%, which is anticipated to decline further before any potential acceleration.

Despite a lower number of new customers, which aligned with expectations given the economic environment, management emphasized the onboarding of over 1,000 customers with governance solutions and positive early trends in Privileged Access Management (PAM).

Management also reported a year-over-year increase in the duration of contracts signed during the quarter, particularly with new customers, marking the third consecutive quarter of this trend.

However, the third-quarter CRPO guidance might provide detractors with concerns due to the bookings miss, indicating a flat year-over-year performance.

The analyst indicated that even with an assumed CRPO beat similar to past trends, the bookings growth forecast remains below consensus expectations.

Despite these challenges, Okta's management has upgraded its full-year top-line growth forecast to 13%, increased operating margins by 150 basis points to 21.1%, and raised free cash flow (FCF) margins by 100 basis points to 23%.

The analyst concluded that while the results did not meet expectations and could keep the stock within a certain trading range, the valuation remains attractive, especially for identity assets, which are still considered a top investment priority.

InvestingPro Insights

As Evercore ISI highlights Okta's mixed financial performance and the challenges ahead, it's beneficial to consider additional insights from InvestingPro. Okta's market capitalization stands at approximately $16.24 billion, reflecting its significant presence in the identity management sector. Notably, the company holds more cash than debt on its balance sheet, which is a positive sign for financial stability. This aligns with the management's strategy to navigate current economic pressures while focusing on growth.

InvestingPro data shows a robust revenue growth of over 20% in the last twelve months as of Q1 2025, indicating the company's ability to expand its top-line despite market headwinds. Furthermore, analysts predict Okta will become profitable this year, which could signal a potential turning point for the company's financial trajectory. With a high return over the last decade, investors may find Okta's long-term performance compelling, although it's worth noting the company does not pay a dividend to shareholders.

For investors seeking a deeper analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/OKTA, which can provide a more comprehensive understanding of Okta's financial health and future prospects.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.