Okta Inc. (Ticker: OKTA) - Brief Breakdown
In my Brief Breakdowns,I pick a stock and present opposite sides – I present the bullish argument and the bearish argument.
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Company Description and Qualitative Analysis
Okta Inc. is a cyber security company that provides identity solutions for enterprises, small and medium-sized businesses, universities, and many industries with large cloud security needs. Okta offers Okta Identity Cloud, a platform that offers a suite of products and services to protect users from cyber threats. Okta recently had a data breach but reported zero damage to business because of it. Okta has had recent poor performance that has been lackluster to say the least and is a cyber security company that does not make money.
Quantitative Analysis
At the time of this writing (6/12/2022), OKTA is trading at $90.12 with a 52 week range of $77.01 - $276.30 and a market cap of $14.22B. In Q1 of 2023 Okta saw revenue grow 65% YoY and subscription revenue grew 66% YoY. The remaining performance obligations (RPO) grew 43% YoY to $2.71 billion and current remaining performance (cRPO) grew 57% YoY to $1.41 billion. Return of equity (ROE: Net Income / Total Equity *100) of OKTA is -16.77% and net margin (net income / revenue) is -67.06%. The price to earnings (price per share / earnings per share) ratio was -14.31 and the debt to equities ratio (total liabilities / total equity) is 0.65. This financial analysis was done using financialstockdata.com (sign up using our promo code GCI to get the first month of the premium tool FREE here). You can view OKTA’s Q1 2023 earnings here and their 2022 Annual Report here.
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Bullish Thesis
Here are three points to support the bullish thesis updates:
Maintaining Business through Negative Press: Okta recently had a data breach and according to their previous quarterly earnings business as usual has not been severely affected. This shows the stickiness of the business that they currently have and the clientele. Cyber security is a sticky industry and it is a hassle to change services therefore businesses will more than likely stay with their current service unless something drastic happens. Surprisingly, a data breach has not really been considered drastic to their customers and that has to be considered a good sign.
Stickiness: Subscription revenue has grown 66% in the past year, which is drastic growth in the past year. The subscription model is great for businesses to have consistent revenue and the overall predicted growth. Consistent growth and revenue will be a key metric for growth in an inflationary environment that potentially will negatively affect companies with no cash flow.
Rapid Growth: Okta has grown rapidly with over 60% revenue growth year-over-year. This kind of growth is almost unprecedented and with negative press it seems like Okta is primed to weather most storms. Okta will look to continue the growth as long as it can continue to grow at the rate it has, although negative press which I will highlight below may halt that.
Bearish Thesis
Here are three points to support the bearish thesis:
Data Breach: There was a recent data breach for Okta and bad press is never good. For a cyber security company, a data breach seems like it would be the kiss of death but it appears business as usual was maintained. For a company that is supposed to protect you, it is not good for current business and for future business and acquisition outlook.
Future Customer Distrust: As stated above, future customers will hear or be able to find out that Okta had a recent data breach. With a recent data breach it will be difficult to acquire more customers and earn their trust to get new businesses. As a company that currently loses money it will already be an uphill battle to acquire more clients.
Losing Money: In a world where there is now a 1.0% rate raise on the table and access to capital is becoming more difficult, growth companies will have a difficult time growing. I believe growth companies overall will have difficulty going forward and the recession seems to be coming to the forefront with each passing day. More companies are rapidly losing money and the near term outlook appears very grim.
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Brandon
Disclosure: The article was written by Brandon Keys, and it expresses the author's own opinions. I am not receiving compensation for it. I have no business relationships with any company whose stock is mentioned in this article. The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Brandon is not a financial advisor. I encourage all readers to do further research and do your own due diligence before making any investments.