Company Reports

We are raising our fair value estimate for no-moat Okta to $100 from $80 after the firm reported strong fourth-quarter results and provided guidance for fiscal 2025 ahead of our prior estimates. We were particularly impressed by the firm’s ability to post strong financial results and guidance despite its security breach in October and the ongoing macroeconomic uncertainty affecting customer buying behavior. We think investors, much like us, saw a lot to like in Okta’s financial results, with shares trading up sharply following the firm’s earnings report. Relative to our updated fair value estimate, we view Okta as fairly valued. For investors seeking cybersecurity exposure, we’d recommend wide-moat Fortinet and Palo Alto Networks as better companies to invest in instead of no-moat Okta.

We believe Okta is poised for long-term success as a leader in the identity and access management, or IAM, space. Okta’s Identity Cloud, which weaves together the firm’s workforce and customer offerings, stands to grow in importance to its clients as zero-trust security infrastructures, digital transformations, and cloud migrations increase the company’s value proposition. However, we assign Okta with a no-moat rating as we don’t foresee excess returns on capital in the next few years. Yet, we believe the firm’s platform, impressive number of integrations, and a broad range of SKUs have allowed the business to be on the cusp of generating high customer switching costs and a network effect.

We are reducing our fair value estimate for no-moat Okta to $80 from $85 after the firm’s strong third-quarter performance was more than offset by its weak preliminary guidance for fiscal 2025. While this quarter’s financial results highlighted solid sales and profitability expansion, we remain concerned about the potential financial blowback to the firm following a security breach Okta disclosed in October.

We believe Okta is poised for long-term financial success as a leader in the identity and access management, or IAM, space. Okta’s Identity Cloud, which weaves together the firm’s workforce and customer offerings, stands to grow in importance to its clients as zero-trust security infrastructures, digital transformations, and cloud migrations increase the company’s value proposition. However, we assign Okta with a no-moat rating as we don’t foresee excess returns on capital in the next few years. Yet, we believe the firm’s platform, impressive number of integrations, and a broad range of SKUs have allowed the business to be on the cusp of generating high customer switching costs and a network effect.

We are maintaining our $85 fair value estimate for no-moat Okta after the firm faced yet another security incident, stemming from a nefarious actor gaining access to its support case management system. While we await results from Okta's internal investigation that will provide more details into the scope and timeline of the breach, one of Okta's customers, BeyondTrust, published a detailed blog post in which the company claims to have alerted Okta regarding this breach more than two weeks ago. Okta's shares are down around 8% following the company's disclosure.

We believe Okta is poised for long-term financial success as a leader in the identity and access management, or IAM, space. Okta’s Identity Cloud, which weaves together the firm’s workforce and customer offerings, stands to grow in importance to its clients as zero-trust security infrastructures, digital transformations, and cloud migrations increase the company’s value proposition. However, we assign Okta with a no-moat rating as we don’t foresee excess returns on capital in the next few years. Yet, we believe the firm’s platform, impressive number of integrations, and a broad range of SKUs have allowed the business to be on the cusp of generating high customer switching costs and a network effect.

We believe Okta is poised for long-term financial success as a leader in the identity and access management, or IAM, space. Okta’s Identity Cloud, which weaves together the firm’s workforce and customer offerings, stands to grow in importance to its clients as zero-trust security infrastructures, digital transformations, and cloud migrations increase the company’s value proposition. However, we assign Okta with a no-moat rating as we don’t foresee excess returns on capital in the next few years. Yet, we believe Okta has a positive moat trend as the firm’s platform, impressive number of integration, and a broad range of SKUs have allowed the business to be on the cusp of generating high customer switching costs and a network effect.

We are raising our fair value estimate for no-moat Okta to $85 from $76 after the firm closed out a strong quarter with financial results ahead of our prior estimates. Further, management’s commentary on the macroenvironment paints a better picture than in prior quarters, with the firm experiencing customer demand stabilization. However, while macro conditions improved from prior quarters, they continue to affect the firm’s sales motion, particularly in the small-to-medium-size customer segment. With shares rallying after the earnings report, we view Okta as fairly valued relative to our updated valuation.

We maintain our $76 fair value estimate for no-moat Okta after the firm reported better-than-expected fiscal first-quarter results, offset by management’s commentary on the macroeconomy that continues to weigh on near-term financial results. These macroeconomic headwinds continued to affect Okta’s ability to land new customers and expand existing ones, as customers across the spectrum seek to recalibrate their IT spending in light of the uncertainty. While the near-term outlook is murky, we believe Okta stands to benefit from long-term tailwinds behind increased adoption of identity-based security solutions. With shares selling off sharply after hours, likely due to the elevated pressures mentioned above, we view Okta’s shares as fairly valued.

We are raising our fair value estimate for no-moat Okta to $76 from $71 after the firm reported strong results to close out fiscal 2023 with a better-than-expected profitability outlook for fiscal 2024. The firm expects a sharp slowdown in sales for the upcoming year (fiscal 2024), a forecast underpinned by a weak macro outlook and as the firm works to resolve Auth0-related sales challenges. However, we’re not deterred by this rebuilding year for Okta as the firm recalibrates its execution strategy while emphasizing profitability in a turbulent macro environment. With shares up more than 10% after hours, we view Okta’s shares as fairly valued.

We believe Okta is poised for long-term financial success as a leader in the identity and access management, or IAM, space. Okta’s Identity Cloud, which weaves together the firm’s workforce and customer offerings, stands to grow in importance to its clients as zero-trust security infrastructures, digital transformations, and cloud migrations increase the company’s value proposition. However, we assign Okta with a no-moat rating as we don’t foresee excess returns on capital in the next few years. Yet, we believe Okta has a positive moat trend as the firm’s platform, impressive number of integration, and a broad range of SKUs have allowed the business to be on the cusp of generating high customer switching costs and a network effect.

We are maintaining our $71 fair value estimate for no-moat Okta after the firm’s strong fiscal third-quarter financial results were offset by the macro tightness which we see affecting the firm’s financials for the upcoming quarters. As the firm navigates the tricky macro environment where most companies across our cybersecurity coverage have reported elongating sales cycles and softness in customer demand, we believe Okta is strongly positioned to benefit from the eventual rebound as the macroenvironment improves. While we don’t believe Okta’s business, with the value-destructive acquisition of Auth0, merits a narrow moat, we continue to view the firm as a leader in the identity and access management space. With shares up almost 15% after hours, we would recommend investors seek a larger margin of safety to invest in a Very-High-Uncertainty-rated name.

We are lowering our fair value estimate for Okta to $71 from $193 while also downgrading the firm’s economic moat rating to none, from narrow, while maintaining our positive economic moat trend. Both the fair value cut and the moat rating downgrade stem from our concerns that the firm’s acquisition of Auth0 is proving to be value-destructive, with Okta facing substantial labor-related attrition and salesforce integration challenges. With heightened execution risks associated with its integration of Auth0, we are also raising our uncertainty rating for Okta to Very High, from High. Along the same lines, we are downgrading our capital allocation rating for the firm to Standard, from Exemplary.

We believe Okta is poised for long-term financial success as a leader in the identity and access management, or IAM, space. Okta’s Identity Cloud, which weaves together the firm’s workforce and customer offerings, stands to grow in importance to its clients as zero-trust security infrastructures, digital transformations, and cloud migrations increase the company’s value proposition. However, we assign Okta with a no-moat rating as we don’t foresee excess returns on capital in the next few years. Yet, we believe Okta has a positive moat trend as the firm’s platform, impressive number of integration, and a broad range of SKUs have allowed the business to be on the cusp of generating high customer switching costs and a network effect.

We are maintaining our $193 fair value estimate for narrow-moat Okta after the firm’s strong second-quarter financial results were offset by expected weakness in demand for the remaining part of the year. We continue to view Okta as a leader in the identity and access management, or IAM, space and believe that the firm’s sticky platform, penetration in the enterprise space, and strong customer growth are all indications of continued financial success for the firm. Additionally, we believe Okta has a long runway for growth as the identity-based security space continues to gain additional wallet share of IT budgets.

We are lowering our fair value estimate for narrow-moat Okta to $193 from $280 as we are taking a more conservative stance on our long-term profitability assumptions. Nonetheless, our new fair value estimate is still solidly above the company’s current share price. We continue to believe that the market’s reaction to recent macroeconomic events has been overdone, with many high-quality software names put to the sword as investors fled from tech.

We believe that enabling access management and protecting networks from malicious actors based upon identity credentials are cornerstones of cybersecurity, and that the dissipation of a distinct security perimeter could make security teams further rely on user-based cybersecurity. Okta's cloud-based identity access solutions upended the prevailing methodology of protecting users and providing access to digital resources based upon on-premises products. We believe that Okta's innovative solutions for user access and security will provide it with a durable presence, and we expect strong revenue growth alongside significant margin expansion.

We are maintaining our $280 fair value estimate for narrow-moat Okta after its first-quarter revenue growth and adjusted earnings easily surpassed our lofty expectations. Even with shares jumping more than 15% after strong results, we still see shares appreciably undervalued. We think Okta's position as a leader within the identity and access management cybersecurity market provide it with an enviable position as organizations increasingly use identity-based measures as their first line of defense in a world that no longer has defined security perimeters. Additionally, we believe Okta is only in the early stages of establishing an especially sticky identity platform that consolidates various security and user enablement functions from a sole vendor.

We are reiterating our fair value estimates for wide-moat network security vendors Check Point Software Technologies at $140, Fortinet at $340, and Palo Alto Networks at $585 after these more-established firms fell about 20% over the last month. We are also reaffirming our fair value estimates for narrow-moat cloud-based security firms CrowdStrike Holdings at $225, Okta at $280, and Zscaler at $265 after these higher-growth firms retracted by almost 40% over the last month. Our top pick is Okta, but all are trading at attractive valuations, albeit with different growth profiles.

Following up on our March 22 initial reaction to narrow-moat Okta's security incident, we still do not see this as a death knell. We believe the company can weather the near-term turbulence caused by customers concerned about its reaction (or lack of action) to the incident that occurred in January. We are maintaining our $280 fair value estimate and believe the shares are vastly undervalued for long-term investors. Our long-term thesis--that Okta has a sizable growth opportunity alongside substantial margin and free cash flow expansion as the leading identity and access management platform--is intact. Identity has become the first line of defense and a key productivity enabler, and we think Okta remains an essential piece of operations and security for customers.