With the increased use of NHIs and AI agents, especially with machine identities, there is a huge opportunity for Okta. This goes the same for the Total addressable market (TAM). As of now, Okta (NASDAQ: NASDAQ: OKTA ) is amongAnalyst’s Disclosure:I/we have a beneficial long position in the shares of OKTA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have ...

Industry Overview - The digital economy has elevated cybersecurity from a background IT concern to a top priority for businesses, as they face increasing cyber threats such as ransomware, data breaches, and phishing attacks [1] - The global cybersecurity market is projected to grow from $193.73 billion in 2024 to $562.72 billion by 2032, reflecting a strong CAGR of 14.3%, driven by the complexity of IT systems, tighter regulations, and the need to protect sensitive data [2] Technological Advancements - Traditional security tools are becoming inadequate against smarter and faster cyberattacks, leading to a shift towards artificial intelligence (AI) for proactive threat detection and response [3] - AI is being integrated into cybersecurity solutions to analyze large volumes of data, enabling companies to automate detection and response processes [3] Company Highlights - **CyberArk Software (CYBR)**: Focuses on identity security solutions, leveraging AI to enhance its leadership in the identity security space with innovations like the Secure AI Agent solution [6][8] - **Qualys (QLYS)**: Specializes in vulnerability management and cloud security, enhancing its AI capabilities to improve threat detection and remediation [9][10] - **Okta (OKTA)**: Concentrates on identity and access management, ramping up AI capabilities to address the complexities of digital identities, with innovations like Identity Threat Protection with Okta AI [12][13] - **A10 Networks (ATEN)**: Advances its AI-driven cybersecurity strategy through acquisitions and scalable solutions, positioning itself for growth in AI data center deployments [15][16][17] Market Positioning - CyberArk's unified platform offers critical capabilities for identity security, enhancing its market relevance and customer value proposition [7][8] - Qualys' AI-powered platform is expected to drive customer adoption and long-term revenue growth [11] - Okta's growing customer base, particularly among Fortune 500 clients, positions it as a compelling long-term investment [14] - A10 Networks is well-placed to benefit from the intersection of AI and cybersecurity, supported by strong margins and disciplined capital allocation [17]

Industry Overview - The Zacks Security industry is experiencing strong demand for cybersecurity products due to the increasing need for secure networks and cloud-based applications, particularly in hybrid work environments [1] - The surge in demand is driven by a significant rise in data breaches, leading companies to seek comprehensive IT security solutions [1] - The industry encompasses both on-premise and cloud-based security solutions, including identity access management, infrastructure protection, integrated risk management, malware analysis, and Internet traffic management [3] Major Trends - Rising cyber threats are escalating the need for robust security solutions, impacting not only individual companies but also national security [4] - The shift towards digital transformation and cloud migration is driving demand for cybersecurity solutions across various sectors, including education, healthcare, and entertainment [5] - Macroeconomic headwinds and geopolitical issues may lead enterprises to delay significant IT investments, potentially affecting the security market in the short term [6] Company Performance - Companies like CyberArk Software, Okta, and Qualys are benefiting from the trends in the cybersecurity market [2] - CyberArk Software is experiencing growth due to rising demand for privileged access security solutions, with a strong presence across various sectors [21] - Qualys is well-positioned to navigate market challenges with its diverse customer base and continuous innovation in information security solutions [28] - Okta's identity security solutions are gaining traction as organizations adopt digital transformation strategies, serving approximately 20,000 customers [33] Financial Outlook - The Zacks Security industry holds a Zacks Industry Rank of 19, placing it among the top 8% of nearly 250 Zacks industries, indicating solid near-term prospects [8] - The industry's bottom-line estimate for 2025 has increased to $1.45 from $1.35, reflecting analysts' optimism about earnings growth potential [10] - Over the past year, the Zacks Security industry has outperformed the broader Zacks Computer and Technology sector and the S&P 500, with a return of 38.3% compared to 11.8% and 11.9% respectively [13] Valuation Metrics - The industry is currently trading at a forward 12-month price-to-sales ratio of 14.77, significantly higher than the S&P 500's 5.12 and the sector's 6.37 [16] - Over the last five years, the industry's price-to-sales ratio has ranged from a high of 19.36X to a low of 6.92X, with a median of 12.56X [17]

Core Insights - The average brokerage recommendation (ABR) for Okta (OKTA) is 1.92, indicating a consensus between Strong Buy and Buy based on 40 brokerage firms' recommendations [2] - Of the 40 recommendations, 21 are Strong Buy (52.5%) and 2 are Buy (5%) [2] - Analysts' optimism regarding Okta's earnings prospects is reflected in a recent 11.5% increase in the Zacks Consensus Estimate for the current year, now at $3.28 [13] Brokerage Recommendations - Brokerage recommendations are often influenced by the vested interests of the firms, leading to a bias in favor of positive ratings [6][10] - For every "Strong Sell" recommendation, there are five "Strong Buy" recommendations, indicating a potential misalignment with retail investors' interests [6][7] - The ABR is calculated based on brokerage recommendations and may not always be up-to-date, while the Zacks Rank is more timely and driven by earnings estimate revisions [12] Zacks Rank Comparison - The Zacks Rank categorizes stocks into five groups based on earnings estimate revisions, with Okta currently holding a Zacks Rank 2 (Buy) [14] - The Zacks Rank is considered a more effective indicator of stock price performance compared to the ABR, as it reflects timely changes in earnings estimates [11][12] - The ABR for Okta aligns with the Zacks Rank, providing a useful guide for investors [14]

Core Insights - Okta, a leading cybersecurity firm specializing in identity and access management, has seen a stock decrease of approximately 10% over the last month despite reporting strong first-quarter earnings that exceeded analyst expectations [2][3] - The company's stock has increased nearly 30% year-to-date, presenting an attractive opportunity for investors [2] Financial Performance - In Q1, Okta's revenue grew 12% year-over-year to $688 million, surpassing the forecast of $678 million to $680 million [3] - Subscription revenue also rose 12% to $673 million, while adjusted EPS increased 24% year-over-year to $0.86 [3] - The company reported positive free cash flow of $238 million for the quarter, marking an 11% year-over-year growth [3] - The net dollar retention rate was 106%, down from 111% a year prior [3] Growth Forecast - Okta has maintained its fiscal 2026 revenue forecast of $2.85 billion to $2.86 billion, indicating a growth of 9-10% [4] - For Q2, the company projects revenue growth of 10% to $710-$712 million, with adjusted EPS of $0.83-$0.84 [4] Market Outlook - The overall cybersecurity market is expected to grow significantly, with investments projected to exceed $298 billion annually by 2028 [5] - Okta's identity management platform is crucial for securing access across various applications, especially as companies adopt cloud-based solutions [5] - Management has noted strong demand for new offerings, such as Identity Governance and Privileged Access [5] Valuation Analysis - Okta has a market capitalization of $17 billion and a price-to-sales (P/S) ratio of approximately 6x based on fiscal 2026 revenue estimates, which is reasonable compared to other cybersecurity stocks [6] - However, trading at 25 times its trailing free cash flow, Okta stock appears somewhat expensive given its low-teens revenue and free cash flow growth [6]

Industry Overview - Software stocks have outperformed hardware stocks by 26 percentage points year to date, with a particular focus on companies involved in artificial intelligence due to their exemption from tariffs [1] Company Analysis: Snowflake - Snowflake specializes in analytics, providing a cloud platform for data unification, sharing, and AI model development, recognized as a technology leader by Gartner [5] - The company has introduced various AI features, including Cortex AI, which offers natural language processing capabilities, and tools for anomaly detection and forecasting [6] - In Q1 fiscal 2026, Snowflake reported an 18% increase in total customers to 11,578, with revenue rising 26% to $1 billion and non-GAAP net income increasing 71% to $0.24 per diluted share [7] - The median target price among 50 analysts for Snowflake is $222 per share, indicating an 8% upside from the current price of $205 [8] - Snowflake's total addressable market is valued at $342 billion by 2028, with expected adjusted earnings growth of 35% annually through fiscal 2027 [9] Company Analysis: Okta - Okta specializes in identity and access management (IAM) software, recognized as an industry leader by Gartner for eight consecutive years [11] - The company provides solutions for customer and workforce identity, supplemented by privileged access management and identity governance products [12] - In Q1 fiscal 2026, Okta's revenue rose 12% to $688 million, with non-GAAP net income increasing 32% to $0.86 per diluted share, although the stock fell due to unchanged full-year guidance [13] - Okta's addressable market is valued at $80 billion, with Wall Street estimating earnings growth of 10% annually through fiscal 2027 [14] - The median target price among 47 analysts for Okta is $130 per share, indicating a 26% upside from the current price of $103 [8]

Core Viewpoint - Okta's stock price fell over 15% following its FQ1 earnings release, despite solid performance and guidance for Q2, primarily due to cautious full-year guidance [1][2]. Group 1: Financial Performance - Okta reported a Q1 revenue growth of 11.5%, down from nearly 20% year-over-year, but exceeded consensus estimates by over 100 basis points [6]. - The core subscription business grew by 12% year-over-year, contributing to the overall performance [6]. - Gross and operating margins improved compared to the previous year, leading to a record profit, with free cash flow of $238.1 million, representing approximately 34.6% of revenue [7]. Group 2: Guidance and Outlook - The full-year guidance was reaffirmed, projecting a revenue increase of about 10%, which is expected to sustain cash flow and business growth [8]. - Q2 guidance anticipates another 10% year-over-year revenue gain, supported by a 14% increase in current remaining performance obligation (CRPO) and a 21% increase in remaining performance obligation (RPO) [8]. Group 3: Analyst Sentiment - The consensus sentiment for Okta is a Moderate Buy, an improvement from last year's Hold, with expectations of at least a 20% rise from the May close [4]. - The consensus price target has increased by 5% in May and 16% year-over-year, indicating a bullish trend [3]. - Despite a downgrade from Moderate Buy to Hold by one analyst due to valuation concerns, the majority of analysts foresee a high-end price range of $130 to $140, suggesting a potential gain of nearly 40% [4]. Group 4: Market Dynamics - Okta's stock price forecast indicates a 17.31% upside, with a current price of $103.65 and a high forecast of $140.00 [9]. - Short interest in Okta's stock is elevated at nearly 5%, which could lead to volatility in the stock price [9][10]. - The stock is currently above critical support levels, suggesting potential for a rebound if the market remains stable [10].

Core Viewpoint - Okta's stock experienced a decline following cautious guidance despite a solid fiscal Q1 performance, reflecting broader economic uncertainties and a conservative outlook from management [2][3]. Financial Performance - For fiscal Q1, Okta reported a revenue increase of 12% year over year to $688 million, surpassing the previous forecast of $678 million to $680 million [6]. - Subscription revenue also rose by 12% to $673 million, while adjusted EPS increased by 24% year over year to $0.86, exceeding the outlook of $0.76 to $0.77 [6]. - The company maintained its full-year revenue forecast for fiscal 2026 at $2.85 billion to $2.86 billion, indicating a growth of 9% to 10% [3]. Customer Metrics - Okta's net dollar retention rate was 106%, indicating growth, although it has decreased from 111% a year ago [7]. - The number of customers with annual contract values (ACVs) above $100,000 increased by 7% to 4,870, and those with ACVs over $1 million rose by 20% year over year [7]. Backlog and Future Guidance - The remaining performance obligation (RPO) backlog grew by 21% to $4.08 billion, while the current RPO backlog increased by 14% to nearly $2.23 billion, indicating future revenue potential [8]. - For fiscal Q2, management guided for approximately 10% revenue growth, projecting revenue between $710 million and $712 million, with adjusted EPS expected to be between $0.83 and $0.84 [8]. Strategic Initiatives - Okta highlighted strong demand for newer products such as Identity Governance and Privileged Access, and is addressing rising security risks associated with AI [4]. - The company is implementing a specialized sales strategy, which has shown early positive results in its U.S. small and mid-sized business team [5]. Market Position - Despite a cautious approach to guidance, Okta is positioned to capitalize on growing market opportunities in the evolving cybersecurity landscape, particularly with the integration of AI [10]. - With a price-to-sales (P/S) ratio of approximately 6.4 based on fiscal 2026 revenue estimates, Okta remains reasonably valued compared to other leading cybersecurity stocks, presenting a potential buying opportunity [11].

Core Viewpoint - Okta (OKTA) has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook on its earnings estimates, which significantly influence stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system emphasizes the importance of earnings estimate revisions, which are strongly correlated with near-term stock price movements [4][6]. - Rising earnings estimates for Okta suggest an improvement in the company's underlying business, likely leading to increased stock prices [5]. Recent Performance and Projections - For the fiscal year ending January 2026, Okta is expected to earn $3.27 per share, reflecting a year-over-year increase of 16.4% [8]. - Over the past three months, the Zacks Consensus Estimate for Okta has surged by 92.4%, indicating strong upward revisions by analysts [8]. Zacks Rank System Overview - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with only the top 20% receiving a 'Strong Buy' or 'Buy' rating [9][10]. - Okta's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting potential for market-beating returns in the near term [10].

Investment Rating - The report maintains a Buy rating for Okta, indicating confidence in the company's potential for growth stabilization and execution on its go-to-market strategy [3][17]. Core Insights - Okta's 1QFY revenue was 1% above expectations, with a cRPO (current Remaining Performance Obligations) 2% above and EBIT margin approximately 200 basis points above [1]. - The company is experiencing a sequential decline in subscription revenue growth and cRPO, which has raised concerns about future performance [1][15]. - Despite these challenges, Okta is well-positioned to benefit from the increasing adoption of AI technologies among its customers, with initiatives like Auth for GenAI expected to enhance its offerings [3][15]. Financial Performance - For FY26, revenue guidance remains unchanged at $2,859 million, with EBIT margin guidance also maintained [1][17]. - The company reported a net revenue retention (NRR) rate of 106%, slightly down from 107% in the previous quarter, and is expected to remain within the 106-108% range for the remainder of FY26 [1][15]. - cRPO bookings grew 9% year-over-year, but this represents a 23% quarter-over-quarter decline, indicating volatility in forward subscription revenue [15]. Valuation Metrics - The adjusted 12-month price target for Okta is set at $137, based on a valuation of 25 times EV/uFCF [17]. - Key financial metrics include projected revenue growth rates of 15.3% for FY25, 9.5% for FY26, and 10.5% for FY27 [9]. - The report highlights a free cash flow yield of 4.9% for FY25, decreasing to 3.4% by FY26 [9]. Market Context - Okta's market capitalization is approximately $22.9 billion, with an enterprise value of $20.5 billion [4]. - The company is positioned within the Americas Emerging Software sector, ranking 3rd in M&A activity [4].