Okta (NASDAQ: OKTA) is a San Francisco-based identity and access management company that helps organizations around the world manage and secure their user authentication into applications. Additionally, developers can also use its cloud-based services to build identity controls into applications, website web services, and devices.
The company is one of the top players in the identity and access management space and handles logs for more than 100 million users. Its cloud framework integrates over 7,000 different software products and infrastructure providers. However, despite cybersecurity being a disruptive and high-growth vertical, Okta shares are down by more than 35% year-to-date and by 40% in the past six months.
Okta suffers user breach dragging stock price lower
One of the recent events that triggered the downfall in the valuation of Okta shares was the news of the breach that the company suffered in January via a third-party customer support provider. It began when LAPSUS$, an organization that extorts its targets by stealing their data, posted screenshots depicting their access to the company’s internal systems to prove the validity of their claim.
Okta has clarified that those screenshots belong to the security breach attempt that was detected by them back in January and that those issues have already been investigated and concluded. Still, the market is furious with this news as they feel the disclosure given was too late, and very little information has been provided.
These days data is considered the new oil and therefore data security is something that is highly valued in the present-day market. Okta is confident its investigations and assessments did not reveal any major security risk, but the breach has questioned the company’s reliability.
Cybersecurity: A Growing Space
Cybersecurity is gaining importance with each passing day. The global cybersecurity market is expected to reach $366.1 billion by 2028 growing at a CAGR of 12% thereby indicating a tremendous market opportunity for companies like Okta.
Currently, Okta is one of the leading players in this market and already accounts for a serious chunk of the market share. Moreover, by securing and connecting business workflows for enabling effective operations, the company is accelerating the pace of digital transformation by bringing in more organizations under its umbrella.
As Okta’s technology is highly versatile and suitable for both workforce and customer identity use purposes, the company continues to expand its customer base. Besides, the introduction of newer products focused on identity governance for simplifying reporting and ensuring heightened protection of highly valuable accounts would further solidify Okta’s position in the workforce identity space.
Widening losses may impact OKTA stock
The pandemic as well as the aggressive sales and marketing campaigns and strategic acquisitions by Okta have helped the company strengthen its topline largely. Yet, there has been a steady rise in the levels of the company’s losses.
For the three-month ended January 31st, 2022, Okta generated $383 million in revenues indicating a 63% year-over-year increase but at the same time, its operating loss increased to $214 million compared to the operating loss of $55 million generated during the same period a year ago.
Again, the net cash flows also decreased to $14 million or 4% of total revenue against the net cash flow of $35 million or 15% of total revenue for the year-ago period. The market is worried as the company expects losses of around $185 million in the upcoming fiscal year thus indicating adversities would continue in the coming year as well.
Okta has great prospects although there might be some short-term concerns eating away at the growth of the company. The solid hold on the growing cybersecurity industry has provided Okta with a huge edge over its peers.
The stocks closed on March 30 at $156 and its average analyst price is $239.54 which is a potential upside of over 60%. Currently, it is trading much closer to its 52-weeks low and therefore seems like a great buy at this moment.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
