Okta (NASDAQ:OKTA) stock is down today despite the company reporting solid earnings for the second quarter. The company also disclosed difficulties integrating Auth0, a customer identification software firm it purchased in the spring.
In addition, management expressed doubt about achieving its long-term growth target of $4 billion in revenue by fiscal 2026 (ending January 2026), stating it was reevaluating the target and would update investors on the next earnings call.
This ruined an otherwise successful quarter, and as of 9:50 a.m. ET, the stock had dropped 29.6%.
What’s the Reason?
More than 16 thousand companies use Okta’s cloud identification platform, and the company far surpassed projections. The quarter’s revenue of $451.8 million was 43% more than the average estimate of $430.6 million made by Wall Street analysts.
Remaining performance obligations (RPO), or backlog, climbed only 25% to $2.79 billion, suggesting that top-line growth may be decreasing, but this may be partially due to signing up government agencies, which tend to have shorter contracts. The current RPO, a measure of the backlog contracted to be fulfilled in the next year, climbed by 36% to $1.5 billion, indicating that revenue growth could soon slow down.
Okta (NASDAQ:OKTA) reported an adjusted loss of $0.10 per share was better than the consensus projection of a loss of $0.30 per share by a wide margin and better than the loss of a penny from the previous year.
Okta (NASDAQ:OKTA) has reduced hiring plans for the year’s second half to focus on profitability after discussing difficulties in integrating the Auth0 sales team on the earnings call. The company also noted that macroeconomic headwinds were picking up speed and that sales cycles were lengthening, an indication of skepticism on the part of consumers.
Okta (NASDAQ:OKTA) stock was down merely 12% in yesterday’s after-hours session, which may have been influenced by the several analyst downgrades after the report.
There is still cause for optimism despite the market’s reaction. The administration is confronting the problems head-on. It has hired replacement salespeople and is training them, and it has modified its go-to-market strategy to make it more evident to customers and its sales team whether they should be using Okta or Auth0 for customer identity.
Although today’s sell-off may present an excellent opportunity to buy in the future, investors should wait for the long-term update scheduled for the third quarter. As the industry leader in cloud identification software, the company has valued its addressable market at $80 billion, making its stock cheaper than it has ever been on a price-to-sales basis at a ratio of just 6.
Given enough time, this could be a multi-bagger investment if the company can weather the storms of the near term.
Featured Image – Megapixl © Timonschneider