Okta Stock Forecast & Analysis: Is OKTA a Buy?

Written by Sean GraytokUpdated: 8th May 2022
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Our Okta stock forecast will analyze the investment potential of this rising cybersecurity stock.  

Okta Stock Forecast: Background

Okta is an identity and access management (IAM) company that provides cloud software to help companies manage and secure user authentication into applications.

As Thomas Jones of Generation Digital puts it, Okta is an identity cloud solution that bridges on-premise applications of all types, from Twitter to payroll services.

Okta’s recent $6.5 purchase of Auth0 enables it to expand into the customer identity and access management (CIAM) market.

This acquisition allows Okta to help developers build identity controls into applications, website web services, and devices.

Demand for Okta is likely to rise as more companies shift their business to the cloud.

Okta Stock Forecast: Investment Potential

#1. Cyber Attacks

According to cybersecurity company PurpleSec, cybercrime is up 600% due to the COVID-19 pandemic.

Additionally, ransomware attacks are estimated to cost $6 trillion annually by 2021 — and companies have noticed.

Fortune 500s have been investing heavily in cybersecurity since 2017, an estimated $1 trillion globally, according to Cybersecurity Ventures.

A portion of this $1 trillion will end up at Okta. More than 10,650 customers rely on Okta’s products and services to keep their operations secure.

#2. Expanding TAM with New Services

After revealing two new products, Okta’s CEO Todd McKinnon estimates the company’s total addressable market (TAM) at $80 billion.

The new products are in “privileged access management” (PAM) and “identity governance and administration” (IGA).

PAM protects data from being exploited by nefarious actors within an organization. IGA improves efficiency on how organizations decide what information users can access on their internal servers.

McKinnon believes these product additions increase Okta’s business opportunity by more than 20%, which will cause revenue to jump 30% in FY22.

Here’s a current breakdown of Okta’s TAM:

  • $15 billion (IGA + PAM)
  • $35 billion (Workforce Identity)
  • $30 billion (Customer Identity)

Is it common for high-growth companies to overestimate their TAM? Yes, but Okta is growing responsibly by dominating one market before moving onto another.

#3. Secular Tailwinds & Recession-Proof

Okta’s astonishing rise is a second-order consequence of the booming cloud industry.

It’s nearly impossible for a corporate company to thrive without leveraging cloud computing. And that mandates cloud security.

As previously mentioned, companies are playing catch-up.

Before the cybercrime awakening, companies were reluctant to make significant investments in cybersecurity because it was difficult to quantify their return on investment to shareholders.

Today, these same companies disproportionately rely on the cloud to conduct operations, which is why they cannot cut cybersecurity spending even in the worst financial downturns.

Vulnerabilities in this domain result in catastrophe, and mitigation starts with identity and access management — Okta’s bread and butter.

Okta Stock Forecast: Moat

A company’s moat refers to its ability to defend its market share from challengers. We believe the following describes Okta’s moat:

High Switching Costs + Customer Retention + Network Effects

It’s painful for a company to switch IAM services once they’re established. Not only laborious but costly.

This is a feature of most (insert letter)-as-a-Service stocks and reminds us of other powerful companies, such as Salesforce. 

Get a foot in the door, mesh yourself into the company’s fabric, do a good job, and retain customers for decades.

Speaking of customer retention — customers don’t leave Okta. The company’s trailing twelve-month dollar-based retention rate was 120% in Q1 FY22.

This means that customers are choosing not only to renew their contracts but also to increase those contracts annually.

This causes the user base to grow, which brings us to Okta’s final differentiator: network effects.

Due to advanced artificial intelligence and machine learning capabilities, Okta’s services improve as the company gains access to more data.

This phenomenon is similar to CrowdStrike’s “Threat Graph” — a proprietary AI model that updates its defense protocols in real-time as it sifts through new data.

Without using the word “flywheel,” Okta has an effective moat. The whole is greater than the sum of these (three) parts.

Okta Stock Forecast & Analysis: Earnings Report

Okta announced fourth quarter earnings on March 2, 2022. Let’s see the results:

  • Total revenue was $383 million, up 63% year-over-year
  • Subscription revenue was $369 million, up 64% year-over-year
  • Remaining performance obligations (RPO) was $2.69 billion, up 50% year-over-year
  • Trailing 12-month dollar-based retention rate was 124%
  • Total customers grew to 15,000 

Okta will attempt to maintain its annual 35% hurdle rate for revenues on an annual basis. It expects to grow full year fiscal 2023 revenues to $1.79 billion, representing a growth rate of 38%.

The company’s CEO added that the company remains propelled by the three mega-trends of cloud and hybrid IT, digital transformation, and zero trust security. 

Okta Stock Forecast: The Competition

Categorizing Okta stock depends on your camera’s zoom — it’s a growth, tech, SaaS, cybersecurity, and IAM stock all rolled into one.

Here are Okta’s main IAM competitors:

  • Microsoft (MSFT)
  • Ping Identity
  • ServiceNow (NOW)
  • VMware (VMW)
  • OneLogin
  • Oracle (ORCL)

If you’re looking for broad exposure to cybersecurity, then consider the following:

  • CrowdStrike (CRWD)
  • Zscaler (ZS)
  • Cloudflare (NET)
  • Palo Alto Networks (PANW)
  • CyberArk (CYBR)

Zooming out even more, here are some other options if you’re looking for high-growth stocks:

  • Square (SQ)
  • PayPal (PYPL)
  • Shopify (SHOP)
  • Zoom (ZM)
  • Amazon (AMZN)
  • Google (GOOG)

The cloud providers will continue to build out comprehensive cybersecurity offerings in an effort to eat market share from companies like Okta. 

Okta Stock Risks

#1. Integrating with Auth0

As pointed out by Techgenix, Okta and Auth0 have vastly different business strategies — Okta has a top-down approach, whereas Auth0 is more bottom-up.

This means that Okta is sales-driven and caters to big business. At the same time, Auth0 puts the developers first, which suits small businesses.

Okta must successfully integrate Auth0’s non-IAM offerings with its existing products in a way that makes sense to its subscription customers.

Regardless, Auth0 will remain an independent operation under Okta’s roof.

#2. Sector Risks In Cyber

Given the public consequences of a breach, there are inherent risks when investing in cybersecurity stocks.

If an Okta-supported company takes a hit (to no fault of Okta’s products), Okta stock could tumble.

There are risks with any “as-a-Service” company, but the stakes are higher with security firms.

Okta Stock Allocation in Your Portfolio

Determining the optimal amount of Okta stock to buy, if any, depends on a variety of personal factors.

However, evaluating secular trends and conducting competitor analysis can make you a more informed investor. Here are a few thoughts to get the ball rolling:

  • Are there better options in the cybersecurity sector?
  • Is Okta consistent with your risk profile?
  • Will Okta successfully integrate its services with Auth0?
  • Can Okta address its $80 billion TAM? What or who will prevent it from doing so?
  • Is Okta on the right side of digitization?
  • Can Okta continue to take market share from incumbents like Microsoft?
  • Is Okta’s moat large enough to prevent other cybersecurity companies from pivoting into its market?

Okta Stock Forecast: FAQs

Is Okta stock a buy?

Based on 18 Wall Street analysts, Okta’s 12-month price target is $274, on average. Analysts on the upper bound believe it could get as high as $316, while lower-bound analysts forecast $235 per share.

Is Okta stock overvalued?

Okta stock’s price-to-sales ratio is touching all-time highs around 35x, but it’s a moderate valuation compared to other names in the cybersecurity space. For example, CrowdStrike and Cloudflare trade at PS ratios of 56x and 68x, respectively.

Bottom Line: Okta Stock Forecast

Cybersecurity stocks like Okta are in high demand — volatility is likely as the market decides on a price.

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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Okta stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, financial management, and Bitcoin. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and companies who are driving technological innovation.