Okta (OKTA -1.06%) investors saw their stock go on a good run in 2020. Shares of the identity management specialist have been boosted by the pandemic, nearly doubling in the last year alone.
Despite a vaccine rollout that has been slowed by distribution problems, the pandemic will eventually come to an end and many employees will return to the office. Against that backdrop, it's understandable many are concerned about a slowing in Okta's stock performance, thinking of the company as simply another work-from-home stock that should be avoided as the world returns to normal.
Long-term investors can rest assured that is not the case. Okta has a long runway of growth and remains a buy. Here's why.
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Okta is more than a pandemic stock
You can forgive investors for giving credence to this bearish thesis. It's a simple take that seems to make sense. But this narrative can be rebutted by simply examining at Okta's top-line growth percentages over the last several years:
|
Metric |
FY2016 |
FY2017 |
FY2018 |
FY2019 |
FY2020 |
FY2021 estimate |
|---|---|---|---|---|---|---|
|
Revenue (in millions) |
$85.9 |
$160.8 |
$256.5 |
$399.3 |
$586.1 |
$822.5 |
|
Growth (YOY) |
110% |
87% |
60% |
56% |
47% |
40% |
Source: Okta annual reports. Fiscal 2021 is estimated by management and ends in January 2021. YOY =year over year.
The broad trends that are boosting Okta's top line were already in place before the pandemic. Businesses have been increasingly investing in digital transformation, specifically the growing utilization of cloud computing technology to share documents, collaborate, and service customers. Against that backdrop, the access and identity management provided by Okta's suite of tools is critical.
While there's no doubt the pandemic pushed adoption forward for some companies, businesses will continue to embrace the work-from-anywhere culture and use Okta's suite of tools for years to come.
Okta's tools are sticky. Once it wins a customer, that customer is more likely to buy additional services than they are to end the relationship -- the company has had a dollar-based net retention rate greater than 117% for the last 11 quarters. Another example of Okta's deepening monetization of existing clients is the growth of customers with an annual contract value greater than $100,000, which grew 34% year over year in the third quarter, outpacing the total customer count growth of 27% during the same period.
The future remains bright
To date, Okta's biggest business has been working with large enterprises for workforce identity, ensuring an organization's remote workforce is who they claim and that they have access only to the business applications they need to perform their job.
However, what's exciting for Okta investors is the growth of its customer identity and access management (CIAM) businesses. A secured experience does not end with your workforce, as ensuring customers have a secured and seamless authentication experience increases engagement and repeat purchases.
Although CIAM comprises approximately a quarter of Okta's revenue currently, it's on track to become a higher percentage because of the tremendous growth. In the third-quarter conference call, CEO Todd McKinnon confirmed CIAM was growing around 70% per year over the last two quarters.
In the long run, Okta estimates the opportunity is nearly as large in customer identity solutions, pegging the CIAM total addressable market at $25 billion versus workforce identity at a $30 billion total market. In the short run, this gives Okta a new service to market to existing customers to keep that dollar-based net retention rate growing for years to come.
