Okta (OKTA -0.61%) is one of the best-performing stocks of the last few years, with shares up over 800% since its initial public offering (IPO) in April of 2017. The company's identity security platform is now used within over 10,000 organizations and is growing like a weed year after year. But it isn't the only company with identity solutions. Enter Ping Identity Holding (PING). The company went public in 2019 and has a similar product suite as Okta, but is focused on large enterprises.
Is Ping Identity the next Okta? Let's take a look.
Similarities and differences
At the basic level, Ping Identity and Okta serve the same purpose. Both have single sign-on (SSO), multi-factor authentication (MFA), and security solutions that allow IT teams to manage employee and customer logins. The two companies even have similar slogans. On Okta's website, readers are told that it is "one trusted platform to secure every identity, from customers to your workforce," and Ping Identity's states it is "one platform to improve security and engagement across your digital business."
While Okta's product is more streamlined to fit into any company, Ping Identity focuses on providing more custom solutions for larger enterprises, which is why it is in 60% of the Fortune 100, including Netflix and Chevron. It also focuses on hybrid solutions (meaning a mix of cloud and on-premise), which makes sense since larger enterprises are more likely to have multiple sign-on and identity environments to take care of.
Both Ping Identity and Okta had strong growth in 2020. Ping's annual recurring revenue (ARR) hit $259.1 million, up 15% from 2019. Overall revenue was flat, but with the majority of Ping's business now coming from subscriptions, ARR is the most important metric for measuring top-line growth. And while it wasn't profitable according to generally accepted accounting principles (GAAP), Ping did generate $22.4 million in operating cash flow last year, which shows that its business model is sustainable. The company also has 72% gross margin, which indicates that it could have strong profit margins once it scales.
Okta's total revenue was $835.4 million for the fiscal year ending Jan. 31, up 43% year over year. Like Ping Identity, it is not profitable, but did generate $128 million in operating cash flow last year. What's interesting to note is that Okta generates over three times as much annual revenue as Ping Identity but is still growing much faster. This comparison might not be fair, however, as Ping and Okta were not direct competitors until the last year or so. Before that, Ping focused on solely targeting large enterprises while Okta focused on a solution for everyone. Now, with new products added to the PingOne software-as-a-service (SaaS) platform to bring it on par with Okta's simple cloud offering, the companies will likely start competing for more and more customers.
None of this guarantees that Ping Identity will start growing as fast as Okta, which is still the market leader and has the greatest mindshare among IT departments, especially outside the Fortune 100. However, it does give it a fighting chance to win over more mid-market customers, which historically have been Okta's bread and butter.
Ping Identity has a market cap of $1.9 billion, giving it a price-to-sales ratio (P/S) of 7.3 if using ARR as a proxy for overall revenue. Okta, on the other hand, with a market cap of $30 billion, trades at a P/S of 35.9. With similar gross margins, and with both companies still unprofitable, this discrepancy in sales multiples shows that investors value Okta's industry lead and historical growth when compared to Ping Identity. If you believe in Ping's ability to transition to smaller customers and continue to grow ARR in the low double digits, there's no reason the companies should have such a big difference in valuation multiples.
The digital identity and security space is a fast-growing market, and should have huge tailwinds over the next few years and beyond. It has paid to own Okta, the industry leader in cloud identity solutions, over the last five years. But with the stock trading at a premium valuation, it might be a better bet to own Ping Identity, Okta's No. 1 competitor, for the next five.