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Okta: Credibility Has Been Smashed

Apr. 04, 2022 10:53 AM ETOkta, Inc. (OKTA)CRWD, CSCO, CYBR, GOOG, GOOGL, NET, PING, TENB46 Comments


  • Okta shocked investors and customers by delaying a response to a Lapsus$ hack by two months.
  • We believe that OKTA stock could remain in the penalty box in the near term.
  • We discuss why investors should avoid OKTA stock for now.
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Okta sign, logo on headquarters building of identity and access management software company.

Michael Vi/iStock Editorial via Getty Images

Investment Thesis

Okta, Inc.'s (NASDAQ:OKTA) highly embarrassing security incident in January involving a breach through its third-party provider Sitel by hacking group Lapsus$ impacted its stock. However, some Street analysts did not consider the hack as "material" on its forward projections. For example, BTIG retained its

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This article was written by

JR Research profile picture

JR Research is a seasoned investor with a background in economics. He focuses on identifying growth companies, market trends and growth opportunities. His approach combines price action with fundamentals.

He runs the investing group Ultimate Growth Investing, which specializes in identifying high-potential opportunities across various sectors. The group is designed for aggressive investors seeking to capitalize on high-growth opportunities, and investors looking for growth opportunities at a reasonable price. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NET, CRWD, GOOGL 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 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 (46)

JR Research profile picture
This thing just broke its previous week's swing lows. Let's see if it can head to 2018 lows. When a company is deeply in the red, anything is possible.
Now weeks after the so called breach, we have the #1 cyber security co trading sub $150.

Yes, we can toss the unprofitable fearful term out there for effect but must remember how pricing works.

OKTA was no different trading at $260+ but now that it became a reasonable entry, it's still viewed as risky?

$$$ mgrs have been accumulating stock off lows while the algos keep the deception alive.

We invest for the future and many will take advantage of the buy opps quietly.

ST PT. $155-$165 When the shift occurs.

Other cos are worth adding too on this environment.

Happy Easter!
@JohnnyM now under 120. valuation matters hugely in this market, as it always should have matter until the fed and gov turned the market into a joke
Lol you mentioned Google Authenticator, an open standard based OTP tool, as an Okta competitor. All credibility lost.
JR Research profile picture
@DaSauce This has been discussed below in other comments. And like we said earlier, Google Authenticator as a "leading" MFA tool was highlighted by CrowdStrike. Furthermore, Okta is still unprofitable. Let's see when they turn profitable after this. They might need to "burn" even more cash to onboard new clients, else they can't maintain their "break-neck" growth. Meanwhile, keep on giving them cash to burn, while they issue more stock based compensation to dilute your holdings.
@JR Research Google Auth was mentioned as a factor for OTHER identity providers. CS not the first to do this. Agnosticism across the board, in this case, supporting many 2 factors options including soft tokens (like Google Authenticator, commoditized feature) is core of Okta’s business model - it’s hoe they rip out legacy Symantec and RSA.

Maybe this will put it in perspective: no one pays for Google Authenticator. You can go download it on the App Store right now for free. It’s identity providers ppl pay for. Okta has always allowed for any 2Factor as they correctly view identity and the contextual policy engine governing the timing and events driving USE of the factor as the strategic piece. Take the hack they mitigated. Contextual policies caught that. And Google, like Microsoft, tries to bundle a solution here but it’s even more immature than Microsoft’s. With enough brute force workers you can get Microsoft’s approach to work, though it’s more complex than Okta due to its ties to legacy tech. Google is half baked. But even comparing the right solution (google workspaces security bundle, not Google authenticator), your statement shows you’re off the mark.

2 players here, Okta and Microsoft. And they pretty much have the market cornered. Ping for certain CIAM legacy use-cases but that’s it.

Your argument is flawed, and saying someone else said it to distance yourself (Crowdstrike) when you used this source to justify your take doesn’t make your take any less wrong.

To your point about profitability, they are ramping up international growth and just made a massive acquisition. And based off international results, it seems to be working. This happens in the B2B tech space l, see ServiceNow and CRM. If you’re confident Okta can get to the operating margins they had pre acquisition of Auth0 with similar growth (30%) at 3-4 billion, that shouldn’t be a long term concern.

I’d just buy both Microsoft and Okta. Don’t have to pick the winner, follow the macro trend.
@DaSauce good stuff. I didn't know Google has an enterprise SSO product. Agree that it is a 2 horse race... the bundle vs the best of breed.
Skipped the investment as the customers who say they run Okta all make want to quit IT due to their unusable SSO. Could always be the customers’ fault, but I don’t have the expertise to judge so I considered it as a cockroach in the kitchen.

The delayed reaction here is me looking under the sink.
Kennan Mell profile picture
I wonder if this author has ever actually used Okta’s product. Comparing it to Google Authenticator and Cisco’s Duo is a bit misleading. Okta’s main competition is Microsoft
JR Research profile picture
@Kennan Mell We didn't say it, we merely highlighted what CrowdStrike indicated. You should ask CrowdStrike CEO George Kurtz. Given his roots in security, he surely knows better.
Kennan Mell profile picture
@JR Research Hm, the direct quote is omitted so I can’t say for sure but I would be surprised if he claimed that the partner integrations are mutually exclusive. For example, I use CrowdStrike, Okta, and Duo together at my day job. Duo for MFA, Okta for SSO
JR Research profile picture
@Kennan Mell Quote: "...Finally, a multi-identity vendor security approach gives enterprises the flexibility to choose their MFA provider. CrowdStrike Falcon Identity Protection enables out-of-the-box integration with most leading MFA providers — including Okta, Duo and Google Authenticator..."
Good article thanks.

As per OKTA "We are a trusted partner to businesses around the world and give our customers the confidence to reach their full potential." However a bunch of kids 16 - 21 years old broke thru their security . Does not say much for the security.

Wonder what traders are doing driving the stock up today though.
JR Research profile picture
@ssadaran You are welcome! Indeed, embarrassing for a bunch of kids telling a cybersecurity player that its platform was weak. At least when NVIDIA got hacked by Lapsus$, CEO Jensen Huang was upfront, saying it was a "wake up call." See: finance.yahoo.com/...

But, Okta management took two months to wake up. And being all that defensive, until several brickbats compelled them to issue an apology subsequently. That's not a best practice guide we would expect from a "top-notch" player. Sounds amateurish.
@ssadaran the hack was via RDP into a contractor's PC. That is endpoint device security which Okta doesn't do. From that standpoint, this was not a failure of the Okta product and due to the implementation of internal least privilege principles, the attackers were only able to *checks notes* take screenshots of L1 access to an internal tool. The attackers could have reset customers admin's passwords - but that would just initiate a multi-step process which would have alerted the customer admins to something fishy going on. To describe an attack that was successfully contained is not a "broke through" situation.

Now, should Okta tighten device security for contractors? Definitely. Should they have communicated this better? Definitely. They should have notified customers immediately. No disagreement there.
But your facts are ruining the narrative of the Okta haters.
ndardick profile picture
Well reasoned and well written. I exited OKTA myself because, in a non-bull market and rising interest rate environment, I learned to react to bad news faster than to good news.
necto profile picture
I don't think trust has been broken. keep it long.
Okta hired a President/COO. She hired a Chief Revenue Office from old company where she was Chief Revenue Officer. Old Okta sales team is leaving in droves. Question is can he bring in the talent to replace them. Suspect Okta will have a good quarter. Question is what about a quarter or two from now.
Puche profile picture
I respectfully disagree with this article. Since going public in early April 2017 at around $17/share, OKTA has done nothing but deliver incredible growth and stock performance. As an early investor in OKTA I have followed the story extremely closely. I have also written about my views often on other SA articles. No doubt OKTA stock price back a year ago or so had gotten out ahead of itself. The recent acquisition provided additional uncertainty to investors. However, IMO OKTA's recent acquisition is going to turn out to be successful. IMO OKTA will continue to deliver low 20s to high teen growth for the next few years. IMO OKTA's balance sheet will continue to strengthen and its FCF, once the cost of implementation is behind it (within the next 12 months or so), will increase materially.

For long term investors who have the patience and wanted to potential increase their OKTA position, the recent pullback gave you an opportune entry point. IMO over the next 5+ years, OKTA's stock performance will deliver solid results. I'm confident that over my 10 year holding period at that time I will be extremely pleased with my OKTA returns. I continue to utilize derivatives to manage my risk, lower my average price and buy the stock cheaper than the current market. As I disclosed, the hedge that I put on last year has been taken off of OKTA as I expect the downward level to be reaching a bottom. Yes, it can go down some more. I'm not smart enough to call the absolute bottom but after the solid consolidation and my hedge working extremely well, it's time to be more opportunistic about OKTA's upside.

Of course this is just my two cents. No issue with anyone that has a different. view. Slow and steady! Good luck to all!
JR Research profile picture
@Puche Thanks for sharing your opinion! Let's see how management copes with new customers. That's more critical moving forward. We don't think Okta would be the same post-Lapsus$ hack. Customers will not forget, because its cybersecurity partners will remember. And they might not choose Okta for integration.
@JR Research you wrote nothing about the actual hack in your article just quotes inflammatory quotes with no security details. Misleading your followers.
JR Research profile picture
@DaSauce The details have been well covered, we don't need to rehash. What matters is what's next, and that's what we have shared. You don't have to agree with what we said, and we are fine with that.
Never impressed with $OKTA before. Might get interested circa $100.
JR Research profile picture
@dgiinvestor $100 would be pretty nice.
This stock has pumped from $130.00/share in April of 2020 until $290.00/share in February 7, 2021. OKTA is still unprofitable, but just wait say the pumpers. It has sooo much growth. Operating expenses 28% above revenue ttm.
JR Research profile picture
@pyrite99 Indeed, the CEO is going on Bloomberg TV later to try and pump the stock: twitter.com/...
alphapecunia profile picture
Presenting Google Authenticator as an alternative to OKTA ... ok boomer.
@alphapecunia My employer did just that. Last year.

But, go ahead and buy fractional shares of all the money-losing stocks the Robinhooders are buying.
Monday FUD.
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