Okta Stock Falls 20% Amid Downgrades From J.P. Morgan and BMO Capital

Okta Stock

Okta Stock (NASDAQ:OKTA)

Okta stock dropped by almost 19% in premarket trading on Thursday after J.P. Morgan lowered its rating on the stock from Overweight to Neutral in response to the company’s FQ1 results.

Okta (NASDAQ:OKTA) is still the leader in the identity industry, the company stated, but growth needs to be stifled by macroeconomic factors.

Okta’s Q1 results exceeded the company’s expectations. It has now raised its full-year revenue projection and FCF margin objectives for 2018. Okta is navigating a sales restructuring in a difficult market, but macro worries continue to take a toll.

Okta’s customer growth slowed to 14% year-over-year, according to analysts at J.P. Morgan. While yearly subscription income rose by 9%, dollar-based client retention declined to 117% from 120%. Next quarter, the business expects decreased NRR and cRPO of 14%-15% Y/Y.

First-quarter results for the San Francisco-based identity solutions firm showed improved retention and cross-sell rates for the third consecutive quarter. While the company sees new logo growth and upsell traction in the installed base, management has emphasized that macro uncertainty across SMBs and corporate remains negative.

Further deterioration due to macro factors is also anticipated. In addition, J.P. Morgan analysts have raised their revenue projections for FY24 but lowered them for the following months due to the worsening of leading KPIs and predictions of prolonged economic pressure.

The company reaffirmed that Okta is a market leader and will reap long-term benefits from migrating identity management to the cloud. However, it seems a more favorable risk-reward elsewhere within its coverage since growth is forecast to slow down shortly, and cash flow is not currently at levels to sustain valuation.

Response to BMO Capital Markets’ Ratings

Okta stock was downgraded to Market Perform by BMO Capital Markets, which believes that the company’s mid-teens growth rate or below provides little room for the stock to rise.

Limited upside to current FY24 CRPO/ revenue/billings expectations and limited upside to multiples were cited as factors for the downgrade by BMO analysts.

Analysts also noted that they plan to reevaluate the possible boost from IGA/PAM in comparison to the run rate of the core identification business as the end of the year approaches.

BMO reduced Okta’s price objective from $94 to $85.

OKTA was down 19.44% to $73.23 on June 1st premarket

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