Okta (NASDAQ:OKTA) shares rebounded on Friday, indicating that some investors believed the stock had been oversold after plunging 34% on Thursday after management disclosed in its second-quarter results report that it was having integration issues. The company appeared to be gaining speed thanks to an upgrade from an analyst.
The stock price rose 6.6% as of 12:30 PM ET.
What’s the Reason?
On Thursday, the tech company was downgraded by several analysts, but on Friday morning, John DiFucci of Guggenheim raised his recommendation from sell to neutral. According to DiFucci, the stock’s decline of 34% on Thursday and 70% this year indicates that investors have already factored in the company’s execution concerns and other challenges. The analyst’s price objective was lowered from $75 to $65 due to the market drop.
Okta reported solid results for the second quarter on Wednesday night, beating estimates on both the top and bottom lines. However, management noted that the company had struggled to integrate Auth0, the customer identity software company it acquired last year, and had experienced higher-than-anticipated attrition from the Auth0 sales force. Revenue projections of $4 billion and free cash flow margins of 20% for the fiscal year 2026 were also under review (which will end in January 2026). That’s a red flag that it might take the company longer than projected to reach those targets.
What’s Next for Okta?
The sell-off on Thursday seemed excessive, even though Okta may have had some difficulties in integrating its acquisition and may need to adjust its long-term guidance. The company is still expanding rapidly and working to solve the problems it identified in the last earnings call. It has hired additional salespeople and begun training them, and it has altered its go-to-market strategy to better communicate to prospective clients and its sales force whether Okta or Auth0 is the superior customer identification platform.
The Okta stock is trading at a price-to-sales multiple of just over 6, which is the lowest it has ever been. The stock of Okta has substantial upside potential if the company can overcome its current difficulties.
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