Okta's stock falls amid wave of downgrades: 'Now is not the time' for profit push

By Emily Bary

Okta recently disclosed new information about a security breach

Okta Inc. shares furthered their selloff in Thursday's session as analysts expressed doubt about the company's strategic focus and deal trajectory in the wake of a recent security breach.

"We believe the company's focus on expanding profitability would be applaudable in absence of the security breach, though now is not the time to drive operating-margin expansion," Wells Fargo analyst Andrew Nowinski wrote in a note to clients.

In his view, Okta (OKTA) should be "100% focused" on gross revenue retention and net revenue retention, while accelerating top-line growth.

"Those are the only metrics that will assure investors that the breaches are in the past," he added.

Okta's management talked up profitable growth on Wednesday morning's earnings call, which came shortly after the company disclosed that an earlier security breach was more serious than initially thought.

Shares of Okta fell 5.3% on Thursday after they fell 2.5% in Wednesday's session.

KeyBanc Capital Markets analyst Eric Heath also downgraded the stock, writing that the latest update about the breach "may create incremental risk on deal pushouts, churn and new business, and it may take a couple quarters to fully assess the impact."

"While we continue to view identity as a top priority within security and Okta as a potential long-term consolidator, given the mis-execution since the Auth0 acquisition and uncertainty on the duration and the degree to which the breach may have an impact going forward, we see risk/reward as balanced," Heath said, as he lowered his rating on the stock to sector weight from overweight.

TD Cowen's Shaul Eyal downgraded Okta's stock as well, writing that the company's outlook "indicates a top-line deceleration heading into [fiscal 2025], reflecting, in our view, the impact of recent high-profile breachesinvolving the company's solutions."

He now rates the stock at market perform, and he cut his price target to $74 from $100 Thursday.

-Emily Bary

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11-30-23 1614ET

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