Before it revealed a surprising but brief data breach earlier this year, Okta (OKTA -5.85%) was the 800-pound gorilla of identity as a service (IDaaS). In the wake of that bad news, Okta did not miss a step. Its own technology stack quickly contained the event and made the company a bigger player. And in the past two years, private equity has removed Okta's significant competition from the stock market, just as demand for identity protection services is picking up.
Identity protection is at the core of data security, but it's a complex morass of firmware and software products, both in-house and third-party. Companies that have big security teams in their IT division and significant budgets can pick and choose the best-of-breed in all categories. Most companies, regardless of size, lack that "luxury." Some are even cutting security staff. That is driving both M&A activity and the growth of companies like Okta, which can deliver a soup-to-nuts menu of identity-protection products and services.
Two of the bigger components of a security strategy are privileged access management (PAM) and identity governance administration (IGA). The former controls who gets access to a system's code and protects against the injection of malware. The latter keeps users safe and controls their access to only the systems and data they need. Okta's gaining ground in both areas as its competitors appear to retreat.
Shrinking competition in the identity security market
According to Rik Turner, senior principal analyst for tech-focused research firm Omdia's IT security and technology team, CyberArk (CYBR -4.00%) and SailPoint are the behemoths of PAM and IGA. SailPoint was recently acquired by private equity firms, taking it off the public market for the time being.
Turner ranked CyberArk as the leader in PAM. Its leading competitors, Centrify and Thycotic, were recently acquired by private equity and merged together as Delinea, also privately held. Turner said Okta is promising to launch a proprietary PAM product within the next year, putting it at loggerheads with CyberArk. Okta leads the market in IGA according to most research houses, including Gartner.
The next direct competitor to Okta, Ping Identity (PING), is in the process of being taken private as well, leaving Okta and CyberArk alone in the publicly traded identity management securities market.
"That's surely indicative that all is not well at Ping, or that things could be a lot better," Turner said. "[Ping] certainly never managed to equal Okta in terms of revenue base, even though they were founded considerably earlier."
Disruption coming for identity security players
Turner said both PAM and IGA are ripe for disruption, just at the right time for Okta. "Okta had two to three times the revenue of its competitors before so many went private," he said. "The private equity firms know Okta is coming for them and has the money to spend to buy into those spaces. But Okta will drive innovation with cloud-native applications in a way neither CyberArk nor SailPoint are ready to offer." Neither competitor can work entirely in the cloud like Okta can, requiring customers to move data from and to the cloud – and increasing the complexity those customers face.
Omdia is not the only research company seeing good things for Okta. Gartner rated Okta the leader in the identity management Magic Quadrant. Forrester Research came to a similar conclusion, naming Okta the leading identity-as-a-service provider for enterprises. What makes this market so interesting is that it is crucial to maintain security for customers of companies like Zoom Video Communications, Experian, and Major League Baseball.
Analysts expect Okta's next earnings report at the end of the year to report a non-GAAP loss of $0.30 per share, a year-over-year decline of 172.73%, primarily because it's investing in the short term to grow its IDaaS business in the long term. That growth may already to be showing up on the top line: The most recent consensus estimates call for quarterly revenue of $430.57 million, up 36.47% from the year-ago period.
Okta has seen its shares take a bear-market hit, but Turner thinks the entire sector is due for a big run. Okta's customer base knows it needs security systems in place before legislation forces them to do so through fines and sanctions. Those customers are looking for painless, comprehensive protection. That makes a collection of individual tools unattractive, and companies with complete, less complicated solutions, like Okta, an easy sell for cybersecurity investors.
Moreover, Okta reported $1.3 billion in revenue in fiscal 2022 (ended Jan. 21), but says its total addressable market is $80 billion. As businesses migrate to cloud operations, identity verification and access management solutions are more important than ever, and Okta looks better poised than any of its competitors to address that need.