Okta OKTA is set to release second-quarter fiscal 2025 results on Aug 28.
For the fiscal second quarter, it anticipates non-GAAP earnings in the range of 60-61 cents per share. Revenues are expected in the range of $631-$633 million, indicating growth of 13-14% from the year-ago period’s reported figure.
The Zacks Consensus Estimate for earnings has remained steady at 61 cents per share over the past 30 days, indicating year-over-year growth of 96.77%. The consensus mark for revenues is pegged at $632.24 million, indicating an increase of 13.71% from the year-ago quarter’s reported figure.
Okta’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 34.55%.
Let’s see how things have shaped up for Okta prior to this announcement:
Okta, Inc. Price and EPS Surprise 
Okta, Inc. price-eps-surprise | Okta, Inc. Quote
Factors to Note for Okta
The company’s second-quarter fiscal 2025 results are expected to reflect the benefits of increased use cases of identity solutions.
Expanding clientele has been a key catalyst. OKTA exited the first quarter of fiscal 2025 with the total customer count increasing 6% year over year to 19,100. Customers with more than $100K in Annual Contract Value (ACV) increased 12% year over year to 4,550. It added 400 new customers in the reported quarter, out of which 160 customers were in the $100K-plus ACV category.
Okta’s Workforce and Customer Identity solutions have been gaining adoption and the momentum is expected to have continued in the to-be-reported quarter.
However, Okta’s results are expected to have suffered from continued macroeconomic challenges. Investments across key areas such as security, public sector and customer support are expected to have hurt subscription gross margin in the to-be-reported quarter.
OKTA Shares Underperform Sector
Okta shares have gained 9.4%, underperforming the Zacks Computer & Technology sector’s return of 22.3%.
Year-to-Date Performance Chart
Image Source: Zacks Investment Research
OKTA stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, OKTA is trading at 6.17X, higher than its median of 5.84X and the Zacks Internet Software-Services industry’s 2.8X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
Strong Demand for Identity Solutions Aid OKTA’s Prospects
The plethora of security breaches worldwide has signified the growing importance of cybersecurity service providers like OKTA. Per IDC’s latest data, worldwide revenues for security products totaled $106.8 billion in 2023, up 15.6% over 2022. Microsoft MSFT was the largest vendor with an 11.6% market share, followed by Palo Alto Networks PANW at 5%.
Cloud Native Application Protection Platforms, provided by the likes of CrowdStrike CRWD and Palo Alto Networks, witnessed the greatest year-over-year growth of 31.5%, followed by Identity and Access Management (IAM) at 21.4%.
IDC expects the global security market to witness double-digit growth over the next five years, with revenues hitting $200 billion in 2028. IAM is expected to be one of the fastest-growing segments, with CAGR expected in the teens or higher between the 2024 and 2028 timeframe.
IAM’s growth prospect is robust, due to the growing need to offer secured remote access and heightened protection needed around ongoing digital transformation by enterprises. These factors bode well for Okta’s long-term prospects. It is protecting customers by blocking more than 2 billion security attacks a month, and expects these numbers to grow.
The launch of Okta Secure Identity Commitment in early 2024 helps clients fight against identity attacks. The Identity Security Posture Management is based on Okta’s recent acquisition of Spera, and the solution proactively identifies vulnerabilities and security gaps. It is compatible with both AWS and Azure.
Okta’s strong portfolio is helping it win market share in the cybersecurity domain against the likes of Microsoft, IBM and CyberArk.
Gartner, in its Magic Quadrant for Access Management 2023, recognized Okta as a Leader, putting it above Microsoft and IBM. Gartner recognized CyberArk as a challenger in its Magic Quadrant.
Conclusion
Okta’s robust portfolio is helping it to expand its clientele. It benefits from positive industry trends, including growing demand for identity solutions. Hence, investors who already own the stock may expect the company's growth prospects to be rewarding over the long term.
However, the stretched valuation, along with a challenging macroeconomic condition, are headwinds for investors.
OKTA currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
