Okta down 20% after earnings, analysts downgrade

Okta (NASDAQ:) shares dropped nearly 20% in pre-open Thursday after the cybersecurity company reported Q1 results.

While of $0.22 and revenue of $518 million (up 25% year-over-year) came in better than the consensus estimates of $0.12 and $511M, respectively, the negative stock reaction was likely a result of increasing macro pressures.

Subscription revenue grew 26% year-over-year to $503M. RPO, or subscription backlog, grew 9% year-over-year to $2.94B. Meanwhile, cRPO, which is a subscription backlog expected to be recognized over the next 12 months, was $1.70B, representing a 20% year-over-year growth.

“While macroeconomic pressures are increasing, we are well positioned to advance our leadership position by delivering valuable product innovation to our customers while delivering non-GAAP profitable growth to our shareholders,” said Todd McKinnon, chief executive officer and co-founder of Okta.

For Q2/24, the company expects EPS in the range of $0.21-$0.22, compared to the consensus of $0.17, and revenue in the range of $533-$535M, compared to the consensus of $527.87M.

For the full year, the company expects EPS of $0.88-$0.93, compared to the consensus of $0.78, and revenue of $2.175-$2.185B, compared to the consensus of $2.17B.

At least two analysts downgraded Okta shares following yesterday’s results. BMO analysts moved to Market Perform and cut the price target to $85 per share from the prior $94.

“Our stock rating is driven by our view that mid-teens type of growth, or lower, leaves limited upside in the shares. Hence, our downgrade is rooted in two beliefs: 1) limited upside to current FY24 CRPO/ rev/billings estimates, and 2) limited multiple upside. As we get closer to year-end, we expect to revisit our views on the potential lift from IGA/PAM vs. the run rate of the core identity business,” they said.

JPMorgan analysts downgraded to Neutral from Overweight with the price target also set at $85 per share.

“We continue to view OKTA as a leader in its markets and well positioned to benefit from Identity migration to the cloud longer term. But with growth expected to deteriorate near term, and cash flow not yet at levels to support valuation, we see more favorable risk-reward elsewhere within our coverage and are stepping to the sidelines,” analysts explained in a note.

Additional reporting by Senad Karaahmetovic