After the identity access management business Okta (NASDAQ:OKTA) reported earnings and projections for the third quarter on Thursday, shares jumped more than 22%, prompting multiple analysts to laud the company despite its severe execution concerns.
Analyst Hamza Fodderwala from Morgan Stanley, who covers the Okta stock with an equal-weight rating and $65 price target, said the company’s third-quarter results were “solid.” Despite the outlook being below expectations, the company had a “low bar” because of the negative sentiment surrounding its sales execution and macro concerns.
While the business tries to solve sales force difficulties and the broader macro worsens over the next year, “the real work starts in terms of achieving a continuous beat and raise cadence,” Fodderwala said in a note to clients. Meanwhile, “likely stock re-rates to 5X [next twelve months sales] on derisked expectations.”
The company’s efforts to bring in new customers have resulted in an increase of 34% in year-over-year remaining performance commitments and 31% in bookings, which are above management’s target but lower than Morgan Stanley’s projections.
According to the analyst, fixing “go-to-market” issues and simultaneously delivering greater “free cash flow” would require at least a few quarters. While current projections are probably low enough, we continue to sit on the sidelines due to a need for more information about when things will begin to stabilize on the execution front.
With most critical measures above expectations and early indications of success on its go-to-market plan, Okta (NASDAQ:OKTA) third-quarter results were “encouraging,” according to Stifel analyst Adam Borg, who has a hold rating and $60 price objective on the stock but acknowledges that more work lies ahead.
Borg told customers, “While Okta is not out of the woods, this print is a starting step towards improving execution and recovering investor confidence.”
Okta stock were boosted by more excellent sales execution and immense transaction success, according to RBC Capital Markets analyst Matthew Hedberg, who has an outperformed recommendation on Okta shares.
As a result of the cautious nature of the guidance, “we believe it presents an appealing setting for upside in [fiscal 2024] and likely a re-acceleration in [fiscal 2025],” Hedberg said.
KeyBanc Capital Markets, an investment firm, cut its expectations for Okta stock last month but maintained its overweight recommendation on the business.
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