Okta soars 22% as analysts praise Q3, forecast amid execution struggles

Michael Vi

Okta (NASDAQ:OKTA) shares surged more than 22% on Thursday after the identity access management company posted third-quarter results and guidance, leading to several analysts to praise the company despite its many execution issues.

Morgan Stanley analyst Hamza Fodderwala, who has an equal-weight rating and $65 price target on Okta (OKTA), noted the third-quarter results were "solid" and even though the outlook was below expectations, given the negative sentiment around its sales execution and macro concerns, there was a "low bar" for the company.

"Now the real work begins in terms of delivering a consistent beat and raise cadence while the company works to fix sales force challenges and the broader macro further weakens over the next year," Fodderwala wrote in a note to clients. "In the meantime, stock likely re-rates to 5X [next twelve months revenues] on derisked estimates."

Fodderwala added that key metrics such as 34% year-over-year growth for current remaining performance obligations and 31% growth on bookings were above management's guidance, but below Morgan Stanley's estimates, as the company continues to work to drive new business.

"We think it will take at least a few quarters to fix [go-to market] challenges and deliver stronger [free cash flow] while doing that," the analyst explained. "Net, while estimates are likely low enough now, we still have limited visibility on timeline for stabilization on the execution front and remain on the sidelines."

Stifel analyst Adam Borg, who has a hold rating and $60 price target on Okta (OKTA), noted the third-quarter results were "encouraging," with most key metrics ahead of expectations and there was some early signs of progress on its go-to market strategy, even if there is more work ahead.

"While Okta is not out of the woods, this print is an initial step towards improving execution and rebuilding investor confidence," Borg wrote in a note to clients.

RBC Capital Markets analyst Matthew Hedberg, who has an outperform rating on Okta (OKTA) shares, noted that while the macro environment continues to get worse, the company benefited from better sales execution and success with larger deals.

And with guidance seen as conservative, "we think it creates an attractive setup for upside in [fiscal 2024] and likely a re-acceleration in [fiscal 2025]," Hedberg wrote.

Last month, investment firm KeyBanc Capital Markets lowered its estimates on Okta (OKTA) but reiterated the firm's overweight rating on the company.