Okta is the IBD Stock of the Day as the cybersecurity firm trades in a buy zone. OKTA stock dived in 2022 amid sales challenges and a nettlesome acquisition, but it reset expectations that could set the stage for a sustained rebound, some analysts say.
On the stock market today, Okta stock climbed 2.3% to close at 77.28. The cybersecurity stock consolidated in early 2023 after a nearly 70% drop last year. OKTA stock's entry point was 74.28 out of that consolidation. Shares are in a buy range that goes to 77.99.
In addition, Okta stock has been hugging its 200-day moving average.
OKTA Stock: Microsoft A Threat
San Francisco-based Okta specializes in identity verification. Its software monitors and manages privileged accounts. Hackers often target employees or management with administrative access to company computer systems.
Okta has been a share gainer in the identity security market. But it faces intensified competition from Microsoft.
In March 2021, Okta made a big acquisition. It agreed to buy Auth0 in a $6.5 billion all-stock deal for the Bellevue, Wash.-based company. Auth0 sells tools that help software developers build identity authentication capabilities into applications.
But integrating Auth0's business into Okta proved challenging, analysts say. At the same time, Okta faced hurdles in the enterprise market selling to large companies.
Two executives, Okta's chief revenue officer and president of worldwide field operations, left the company recently.
For fiscal 2024, which starts later this year, Okta lowered its revenue growth outlook to a range of 16% to 17%.
Also, some analysts argue that Okta's high valuation makes it a good acquisition target.
Okta Stock: Restructuring Plan
"We continue to think OKTA represents a good second-half rebound idea as estimates stabilize and potentially reaccelerate," RBC Capital analyst Matthew Hedberg said in a note to clients.
Okta recently announced a restructuring plan to reduce operating expenses. It laid off 300 employees, about 5% of its workforce. Further, Okta expects $15 million in restructuring charges for its fourth quarter.
In addition, Okta will report fourth-quarter earnings on March 1.
At Needham, analyst Alex Henderson said in his note to clients: "Okta's staff churn (in 2022) was alarming at well over 20% companywide and 30%-plus at Auth0. With the businesses stabilized and the economy slowing, Okta churn is back below historical norms. We think this is key in allowing Okta to re-accelerate and improve profitability."
Through Monday's close, OKTA stock had climbed 12% thus far in 2023.
Meanwhile, the Relative Strength Rating of the cybersecurity company stands at 42 out of a best possible 99, according to IBD Stock Checkup.
In addition, OKTA stock has an Accumulation/Distribution Rating of A. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Goldman Sachs Initiates Cybersecurity Stock At Sell
Some analysts are skeptical of an Okta rebound. For one, Goldman Sachs analyst Gabriela Borges today initiated coverage of Okta stock with a sell rating.
"We expect Okta's pace of share gain in identity access management to slow, given Microsoft is becoming slightly more competitive and the identity cloud upgrade cycle being further along," Borges said in a note.
At Bank of America, analyst Madeline Brooks on Monday initiated coverage of OKTA stock with an underperform rating.
"We see elevated risks of slow growth and limited margin upside resulting from intense competition with Microsoft, pricing erosion, channel conflicts and other structural challenges," Brooks said in a note.
Meanwhile, Microsoft sells multiple cybersecurity products to companies in discounted deals.
The software behemoth has told analysts that its security business now brings in $15 billion in annual revenue. It's growing 40% each year. Also, Microsoft bundles products at its Azure cloud computing business and Office 365 platform.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
