Okta (OKTA -2.66%) shareholders lost ground to the market on Friday. The cybersecurity specialist's stock was down 5% by 3 p.m. ET compared to a 2.6% slump in the S&P 500. The dip added to a tough year for investors in the stock, which remains down nearly 60% so far in 2022.
It was powered partly by general fears on Wall Street, but Okta is also due to announce earnings and potentially disappointing operating results in a few days.
The most direct reason for Okta's stock decline on Friday was the market's drop. The tech-heavy Nasdaq index dove 3.2% by 3 p.m., and that bearish move dragged most tech companies down. Microsoft and Palo Alto Networks, for example, each fell by 3%.
Yet Okta shareholders also have specific worries about the company's upcoming earnings report, slated for Aug. 31. Peer Palo Alto Networks issued strong sales results and raised its growth outlook, in part because of high demand for the type of network security and identity management services that Okta provides.
However, the company is also facing pressure from a data breach, along with increased costs associated with its purchase of Auth0 in 2021. Okta reported a $240 million operating loss in the first quarter, equating to 58% of sales .
Most investors are looking for those losses to moderate over time, but the company is still expected to announce losses in its Wednesday earnings report. Sales should land between $428 million and $430 million, management predicted back in June, for a 36% increase year over year.
Watch for signs of stress that might show up in Okta's European markets. Earnings might also be pressured by short-term swings in currency exchange rates. Investors can safely ignore this type of volatility, so long as evidence continues showing Okta adding value to its platform.
This success will show up in metrics like new customer sign-ups, average contract sizes, and renewal rates. If Okta can demonstrate progress along these lines, the stock could quickly recover some of its recent losses.