Categories Analysis, Technology

Okta (OKTA) rides COVID tailwind; stock is worth adding to watchlist

The size of the company's addressable markets is estimated at $55 billion, with workforce identity accounting for 55% of it

Over the years, the nature of security threats in cyberspace constantly changed, in line with the transformation the IT sector is undergoing. Okta, Inc. (NASDAQ: OKTA), a specialist in cloud-based identity and access management solutions, is witnessing strong adoption of its solutions after the coronavirus pandemic triggered a digitization spree across industries.

Interestingly, Okta generated profit for the first time in the second half of last year, about four years after becoming a public company. It has managed to sustain the surprise turnaround since then, bringing cheer to shareholders.

Value Spikes

Naturally, the company’s market value nearly doubled from the lows seen early last year, and it continues to elicit significant investor interest. With the favorable business conditions continuing, the stock will likely grow further during the remainder of the year. So, experts have assigned moderate buy rating, implying that the shares are a good investment for those looking for long-term engagement. Moreover, the recent weakness in the stock’s performance can be considered as an entry point.

Read managemt/analysts’ comments on quarterly reports

With the threat environment becoming increasingly complicated, especially after the shelter-in-place orders forced businesses to take the digital route to stay afloat, Okta’s products can play a key role in the adoption of cloud/hybrid technologies and in zero-trust environments. The value of the company’s addressable market is estimated at $55 billion, with workforce identity accounting for about 55% of it.

From Okra’s Q4 2021 earnings conference call:

“We’re fortunate that the nature of Okta’s business allows us to operate successfully in this dynamic work environment. We’re also proud of the fact that our solutions help our over 9,000 customers securely connect their distributed workforces and strengthen the security and identity posture of their websites and applications. The three megatrends that have been driving our business for the past several years, the adoption of cloud and hybrid IT, digital transformation, and Zero Trust security are being accelerated.”

Road Ahead

To achieve the growth targets, Otka has to remain focused on innovation, broaden the partner channel and expand the business in the overseas market. It has launched a new customer identity risk ecosystem. Also, the company recently inked a $6.5-billion deal to acquire Auth0 as part of its efforts to boost the customer identity security portfolio. Currently, it is a market leader in workforce identity solutions. Meanwhile, the growth plan would require heavy investments this year and beyond, and that will put liquidity under pressure and also weaken margins.

Stays Profitable

While maintaining profitability, the company ended fiscal 2021 with cash flows of about $35 billion. On an adjusted basis, fourth-quarter profit was $0.06 per share, which marked an improvement from last year’s break-even bottom-line. That is due to a 40% surge in revenues to $234.7 million. Once again, the numbers exceeded expectations, as they did in the previous quarters.

Zscaler could be an ideal cybersecurity stock

The stock climbed to a record high in early February, but lost steam since then and entered a volatile phase. The shares traded higher on Friday afternoon, after closing the previous session higher. The current value is slightly below the levels seen at the beginning of the year.


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