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Okta: Racing Ahead To A Huge Valuation

Mar. 08, 2018 8:05 AM ETOkta, Inc. (OKTA)12 Comments
Gary Alexander profile picture
Gary Alexander


  • Okta reported Q4 results that shattered analyst expectations, sending shares skyrocketing near the $40 range.
  • The company's revenues grew 59% y/y in Q4, one of the fastest growth rates for a company of its size.
  • Operating cash flows also broke even in the quarter for the first time in the company's history.
  • Guidance for FY19 was strong, but implied heavy deceleration in the back half of the year.
  • Shares are extremely expensive at 11x forward revenues and are probably best avoided.

Okta (NASDAQ: OKTA), the single-sign on and identity management software company, has never failed to impress investors with its earnings results. Q4 (which Okta "pre-released" a week earlier, to much celebration) was no exception, with upside guidance goading investors into sending shares up to nearly $40.

Year to date, shares of Okta are already up more than 50%, far eclipsing the volatility seen in the broader market - which, as it currently stands at the time of writing, is about flat for the year as the market digests a flurry of headlines on inflation, tariffs, and most recently, the departure of chief economic adviser and ex-Goldman COO Gary Cohn. Despite turbulence in the broader markets, Okta has seen only one direction: up.

A lot of this rise is justified. I've been a long investor in Okta for most of the time since the company went public, and the outlook for Okta's product and market is incredible. Businesses are now using such a wide smorgasbord of applications that managing passwords and sign-ons, without an interface like Okta, has become a nightmare. And without much competition in the SSO space, Okta has been left to grow unchecked - case in point, the ~60% growth rate Okta saw this quarter basically defying gravity for a company at its ~$300 million run rate.

Additionally, note that Gartner named Okta a leader in its first-ever Magic Quadrant for Access Management (other leaders include Microsoft (NASDAQ: MSFT)), not only validating its space but essentially putting it at the top of the pack.

And while I do kick myself for having sold Okta too early, I don't regret making a sell decision grounded on overvaluation. It's pretty safe to say that's the territory Okta finds itself in now.

After the company's earnings rally, at

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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 no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (12)

It’s just a matter of time to AMZN & MSFT to have a better and cheaper offer
rahulkapoorca profile picture
Nice article.

Gary, any color on competition and risks would be greatly appreciated?

10 Mar. 2018
OKTA filled
The earnings gap. I think the stock will trade in a 5% range for a week or two then another leg up.

OKTA is being recognized as THE identity leader.
Neurology profile picture
Hi, Now OKTA is at $40. What is a good number to jump in at?
Hi all. For us "newbies" can you put the meaning of your abbreviations (in parenthesis)? Thanks.
cityp3 profile picture
Stock remains cheap on lt fcf potential. Addressing massive market in its infancy as emerging leader. Myopic focus on st multiples will leave you with regrets down the line. Company not even doing $300mln in revenue but on its way to billions at scale with huge fcf. Stay long.
this stock has all upside potential. the areas that they focus on in security are a plus in todays work place through the cloud. this is my major holding. the CEO is brilliant and wall street loves him. what else can i say!!
Hi Cityp3, of course I get your point as the company still has a small market share in a market which is probably growing fast. Any forecast for free cash flow potential in 2020 or later ?
100% on target at 4 billions way over price dot com bubble territory
08 Mar. 2018
Great article on many fronts.
For traders looking to peel off profits, I agree the stock has had a massive run.

But I wouldn't try to time entry and exit points if this is a long term investment.

Good luck all!!
Puche profile picture
Gary, this is one of the best articles I’ve ever read on SA. Well balanced, provides facts, gives analytic information and your personal view. You discuss both sides of the issues. Well done!!!

I’m curious why you wouldn’t recommend buying puts to hedge the downside risk while still maintaining the upside. Insurance still isn’t that expensive relative to how much a continuity subscription model can grow during its hyper growth faze. Look at what is happening with VEEV’s stock price. IMO OKTA is 3 or 4 years behind it in revenues lifecycle but can continue its upward trajectory. No doubt neither VEEV nor OKTA are cheap but IMO LONG TERM investors should focus on the strong FCF potential and continued strong revenue growth. IMO I believe such investors should maintain a long position but utilize outs to hedge against a major stock correction. This is especially true, if similar to you, you have held the stock since OKTA has gone public. I’m in that boat too. Long and strong!

Again, nice job for the excellent article on a little known stock.

Of course this is all my two cents. Slow and steady! Good luck to all!
Onboarding emoloyees, managing levels of security, passwords, etc., is a headache - OKTA makes that headache go away.
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