Despite a sizable dip in stock price over the past year and projected net losses ahead of its earnings report, the outlook for Okta (OKTA -1.79%) is favorable. In this video clip from "The Virtual Opportunities Show" on Motley Fool Live, recorded on May 24, Fool.com contributors Demitri Kalogeropoulos, Travis Hoium, and Jose Najarro discuss some of the company's growth areas that are moving it in the right direction.
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Demitri Kalogeropoulos: This is the digital identity management company. Very interesting. I've been following them for a while. You can see their stock price similar to a lot of what we've been talking about is down aggressively. This is in the past full year, down about 70%.
Okta is growing really quickly and sales are expected to grow 55% this quarter. They were up 63% in the last quarter. We're talking about still some big numbers and revenue. Even after they just made this big acquisition called Auth0. Even if you take that out, the company is still growing organically at about 40%. Those numbers are good. Wall Street's expecting that number to still look good.
Palo Alto Networks, which is in the same category in the cybersecurity space. They've recently reported earnings and they raised their 2022 outlook, which was a nice surprise and we're not seeing that too often. They said they're seeing a lot of strength in this digital transformation space. That's still happening. That could be helping Okta.
I'm not expecting that number to be too much of a big surprise downward, but the big challenge that I guess most of Wall Street is nervous about here is that Auth0 acquisition that I mentioned, it was a big purchase they made last year.
The Auth0 business is not as mature, I guess, as the core Okta business. It's bringing down margins and they're a little bit more focused on growth and trying to ramp up that profitability. That entire business is going to be bringing down the margin profile of the bigger Okta business.
The company posted net losses for last year and they're projecting net losses for this year. That environment is not something that Wall Street is really excited about right now. That's the main reason I would say that the stock is under pressure.
But this is a really exciting growth story. I think the digital transformation that's going to be happening for the next 10 years and 15 years or longer, more companies are moving more business to this hybrid work environment. They need to be able to manage that and have a good platform where people can seamlessly log into their systems.
I think Okta is going to show next week, probably some good customer growth, customer retention. Look at that net retention number and if people are still signing up for bigger contracts, I think that's all good signs for the business. In this environment, like Jose said, very few reasons that a stock is going to go up in this world right now because investors are really fear, I guess as gripping most of the market.
But still, I think that's something we can look past and try to focus on in three or four or five and seven years now is this business going to be in a better position? I think there's a good likelihood that it will be. I like the stock. I'm going to be watching their earnings next week.
Travis Hoium: Yeah, just to piggyback on exactly what you said. Watch the trends of the business, not whether or not Wall Street's estimates hit what the company actually did. I think that's really important is are they adding customers? Are those customers staying? Are they spending more money? That's what's long-term going to drive the stock.
Jose Najarro: I want to say, I think that cybersecurity is a very interesting market right now. I feel like there's so many companies attacking this market in different ways and doing similarly the same thing. With a lot of these pullbacks, I would be shocked if this year of 2022, we don't start to see a lot of these, either cybersecurity companies start to do mergers or acquisitions from either big players or just joining up to become one big cybersecurity company. Pretty interesting because Okta I just saw a market cap of roughly about $13 billion at the moment.
Demitri Kalogeropoulos: There could be some bigger CFOs looking at that and being excited about that potential too.
