Assuming that by calendar year 2025 Okta will be trading at a valuation multiple of 12 times annual sales, the company will be worth about $50 billion (currently it is ~$8.6B). Then factor in buyout premium on that = quality returns for astute investors establishing a long position now.
Okta is a Zero Trust Information Security Powerhouse with a Target on its Back
SHARE DATA, MARKETCAP, CORPORATE INFO:
Okta, Inc.
Nasdaq stock symbol: OKTA
Share Price: $54.18
Market Cap: $8.6 Billion
Shares Outstanding: ~150.8 Million
Key statistics: https://finance.yahoo.com/quote/OKTA/key-statistics?p=OKTA
Company website: https://www.okta.com
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Okta, Inc. (NASDAQ: OKTA) is an American identity and access management (IAM for short) company based in San Francisco. It provides cloud software that helps companies manage and secure user authentication into applications, and for developers to build identity controls into applications, website web services and devices. Okta had an initial public offering (IPO) on April 7, 2017.
Okta solves the annoying problem and security threat posed when employees have too many applications and sites to remember access to; e.g. you are familiar with “Username or password is incorrect.” The average enterprise has hundreds of software applications that are used to run their businesses. Okta solves that problem with its flagship product ‘Single Sign-On’ (SSO) — An employee simply remembers one username and one password, and they can access any software programs used by their company that are required to do their jobs.
Okta’s has many thousands of pre-integrations that the company has done with other cloud-based software companies. Okta has all of these integrations completed, and essentially off the shelf, makes it simple for new customers to migrate to Okta’s identity and access management solution. Responsible companies need to manage anyone and everyone who needs to access their networks and software applications, from all employees thru to partners, suppliers, and customers. Okta provides software that maintains a directory of all users and their profiles as well as a life cycle management product and makes it easy for companies to activate and deactivate accounts/users in a systematic and timely fashion. In today’s age, employees seek connectivity from multiple devices (phones, tablets, laptops) from any location, and companies needed to have a way to authenticate users and provide them access to the software services that they run their businesses on.
One Password Zero Trust Information Security; the most intelligent security posture is to never trust any entity trying to access a network resource. Every individual connection must be verified through a form of digital ID. Employees are often traveling from location to location, connecting through a variety of networks, and sometimes from different countries. As a result of the pandemic, nearly 90% of corporations are now working on plans for zero trust information security architectures.
Figure 1. (above) Okta Single Sign-on — OVER 5000 applications cooprerate with Okta
Why we are keen on Okta now: In March 2021 Okta acquired another information security leader, Auth0 (pronounced “auth zero”), for $6.5 billion. The acquisition was complementary / ideal match and has created a powerhouse in this niche of the industry, nearly doubling Okta’s addressable market, with only one other meaningful competitor left now (that being Ping – more on them below). The combination of Okta and Auth0 allows Okta to take care of the employee workforce and partners for an enterprise, and Auth0 focused on providing secure access to customers and subscribers.
Besides the acquisition dramatically increasing Okta’s market opportunity, it helped solve a major competitive risk for the company. Auth0 dominated in the customer identity and access management space, and there had already been rumors in the industry that a company like IBM, Microsoft, Oracle, or Salesforce might swoop-in and buy Auth0, putting Okta at a competitive disadvantage. The acquisition de-risked Okta’s business from a competitive perspective and simultaneously increased its own attractiveness as an acquisition candidate.
Some of the most trusted brands in the world now trust Okta
The combined company is now a powerhouse with more than 15,000 customers. The company is on track to generate more than $4 billion in annual sales at 79% gross margins by fiscal year 2026 (ending January 31, 2026), so ~equivalent to calendar year 2025. Source: Company presentation, see https://investor.okta.com/?_ga=2.65264812.303123139.1660111468-1009380203.1660111468
Valuation commentary: Assuming that by calendar year 2025 Okta will be trading at a valuation multiple of 12 times annual sales, the company will be worth about $50 billion (currently it is ~$8.6B).
Note on competition and how it ties into Okta: Ping is a competitor to Okta, however Ping’s core business is still largely focused on large enterprise customers, whereas Okta’s niche continues to be small and mid-sized businesses. Ping is likely to be an acquisition target from the aforementioned big players that were previously rumored to be interested in Auth0, which Okta primitively acquired. When Ping is acquired, a major target will be on Okta’s back. In-short, despite a $8.6B valuation now for Okta, look for multiples of that over the next few years.
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Note on timing a purchase: Currently we are in a general bear market for stocks, this makes stock picking timing difficult. Consider buying warrants instead of the stock if you want to limit risk. Don’t get mad if the stock goes down, be happy as you can get more stock at a cheaper price… so do not necessarily buy all in one tranche — the point here is, this appears a good company to scale into over the long run.
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Disclosure: The subject company of this article is not a client. Investor Opportunity has full editorial control of this article. The author has not been compensated to cover the subject company on Investor Opportunity. The author and/or its trading desk affiliate either owns now or plans on establishing a long position in the subject company.
