OKTA - Okta: Rating Upgrade As Management Drives Focused 'Go-To-Market' Strategies And Expands Margins

2024-04-23 12:58:58 ET

Summary

• Okta's revenue and earnings exceeded expectations in Q4 FY24. Management is focused on reigniting growth and leveraging the partner ecosystem, while improving margins at the same time.
• The company is committed to improving security through initiatives like the Okta Security Identity Commitment and is launching new products to continue its innovation roadmap.
• The company is expected to see revenue slowdown in FY25 at 10-11%, while margin is expected to expand 450 basis points to 18.5%.
• Despite concerns about slowing cRPO and competition, I am optimistic that the management is taking steps in the right direction, which should drive an upside of 27% for the stock.

Introduction & investment thesis

Okta (OKTA) is a cloud-based identity and access management company that has performed more or less at par with the S&P 500 and Nasdaq 100 YTD. I initiated a “hold” rating on the stock in February, and my thesis was predicated on my belief that the company would see a slowdown in pipeline growth and deal closure rates given the security breach incident it faced in October. While the company had been making strides to improve profitability, I believed that the stock was a “hold” given the uncertainties that lay ahead. Since the time of my “hold” rating, the stock has climbed 14%....

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