Okta shares target cut to $92 amid growth concerns

On Thursday, Scotiabank adjusted its outlook on Okta, Inc. (NASDAQ: NASDAQ:OKTA), a leading identity management company. The firm's analyst has lowered the price target to $92.00 from the previous $104.00 while maintaining a Sector Perform rating on the stock.

The revision follows Okta's second-quarter performance, where the company surpassed its calculated Remaining Performance Obligations (cRPO) guidance, albeit by a narrower margin than in previous quarters.

Okta's forward guidance suggests a modest 9% growth for the third quarter, which has been viewed as a red flag for the company's fiscal year 2026 business momentum. The company's Net Retention Rate (NRR) also experienced a 1 percentage point decline this quarter.

Management has expressed concerns about potential further pressures in the second half of the fiscal year 2025, as companies are expected to reevaluate software spending upon renewals. This could lead to a decrease in monthly active users for Okta's Customer Identity and a reduction in seats for Workforce Identity.

The analyst from Scotiabank highlighted that security incidents may be adversely affecting Okta's financial performance. There is an indication that these incidents are causing new business to look elsewhere and making existing customers hesitant to expand their use of Okta's software.

The firm's comprehensive checks suggest that these challenges could persist, potentially creating headwinds for the company in the latter part of fiscal year 2025.

Despite these issues, Okta is recognized as a leading vendor in a critical area of cybersecurity. However, Scotiabank advises that it may be premature to reinvest in Okta's stock at this time. The Sector Perform rating reflects a neutral stance on the company's shares, implying that the stock is expected to perform in line with the expectations for the overall sector.

In other recent news, Okta, Inc. reported a 16% year-over-year revenue increase to $646 million in the second quarter of fiscal year 2025, slightly surpassing consensus estimates. Subscription revenue climbed by 17%, contributing to this overall growth.

The company's calculated remaining performance obligations (cRPO) also exceeded expectations at $1,995 million, a 13% year-on-year rise. Despite solid financial indicators, Okta's market penetration showed signs of deceleration, with customer growth rate slowing to 5% year-over-year.

Following these results, TD Cowen reaffirmed its hold position on Okta with a steady price target of $110.00. Other major financial firms, such as Wells Fargo and JPMorgan, have adjusted their price targets for Okta to $90 and $105 respectively, citing a forecasted slowdown in the company's growth and challenging macroeconomic conditions.

Evercore ISI, however, 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.

Investors should note that while the company has raised its full-year outlook for fiscal 2025 to a 13% total revenue growth and a 21% non-GAAP operating margin, the management has also expressed cautious expectations amidst a challenging macroeconomic environment.

InvestingPro Insights

In light of Scotiabank's recent price target adjustment for Okta, Inc. (NASDAQ: OKTA), it's worth considering additional insights that could inform investors' perspectives. According to InvestingPro data, Okta holds a market capitalization of approximately $16.24 billion, which underscores its significant presence in the identity management sector. Despite the company not being profitable over the last twelve months, analysts are optimistic, forecasting profitability this year, which is a positive signal for potential investors. This aligns with Okta's substantial revenue growth of over 20% in the last twelve months as of Q1 2025, indicating a strong market demand for its services.

Moreover, Okta's gross profit margin stands at an impressive 75.15%, reflecting the company's ability to maintain profitability on its core services. This financial health is further supported by the fact that Okta holds more cash than debt on its balance sheet, providing a buffer against market volatility and potential downturns. Additionally, the company's liquid assets exceed its short-term obligations, which is a testament to its sound liquidity position.

While Okta does not pay a dividend, suggesting a reinvestment of earnings back into the company's growth, the stock has delivered a high return over the last decade, which might appeal to growth-focused investors. For those interested in a deeper dive, there are additional InvestingPro Tips available, providing a more comprehensive analysis of Okta's financial outlook and performance metrics (https://www.investing.com/pro/OKTA).

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