What happened
After Okta (OKTA +2.77%) stock plunged 34% Thursday after management acknowledged in its second-quarter earnings report that it was experiencing integration challenges, the stock was in recovery mode Friday, suggesting that some investors believed the stock had been oversold. An analyst upgrade also seemed to be giving Okta some upward momentum.
As of 12:30 p.m ET, the stock was up by 6.6%.
NASDAQ: OKTA
Key Data Points
So what
Several analysts downgraded Okta Thursday, but on Friday morning, Guggenheim's John DiFucci upgraded his rating on the stock from sell to neutral. DiFucci said that with the stock down 34% Thursday and 70% so far this year, the execution issues and other challenges the company faces seem to be priced in. The analyst did lower his price target from $75 to $65 to reflect the sell-off.
On Wednesday night, Okta reported solid second-quarter results, beating estimates on the top and bottom lines, but management said it had faced challenges integrating Auth0, the customer identity software company it acquired last year, and saw higher-than-expected attrition from the Auth0 sales force. The company also said it was reevaluating its long-term guidance target for $4 billion in revenue and 20% free cash flow margins in its fiscal 2026 (which will end in January 2026). That's a sign that it may take the company longer to get to those milestones than it had expected.
Now what
While Okta may have hit a few speed bumps in the integration of its acquisition and might need to adjust its long-term guidance, Thursday's sell-off does seem overdone. The company is still growing rapidly, and it's tackling the challenges it acknowledged on the earnings call. It has replaced the sales reps who left, though the new hires are still being trained, and it has also changed its go-to-market strategy to make it clearer to potential customers and its sales force which customer identity product -- Okta or Auth0 -- is the best fit for which customers.
On a price-to-sales basis, the stock is as cheap as it has ever been, trading at a multiple of just over 6. If Okta can get past its current challenges, which seems likely, the stock has a lot of room to grow.
