Okta Inc., (NASDAQ: OKTA), the company that acquired Auth0, is a SaaS company that provides an identity management platform for businesses, small and medium businesses, government, and other organizations.
The company’s competitive advantage stems from the sale of identity authorization services to large, highly regulated companies.
As news broke of the acquisition’s finalization, analysts have revised their estimates for the future of the company.
Okta provides simple and secure access to people and organizations around the world, which is supposed to integrate seamlessly with multiple account services. Our readers may recognize that when they log into websites, sometimes they have a range of choices for logging in: Facebook, Google, Email, etc. This has Auth0 and a similar identity architecture in the background.
Oktas customers represent more than 10,650 organizations, including JetBlue, Nordstrom, Siemens, Slack, T-Mobile, Takeda, Teach for America and Twilio. Okta claims a 120% dollar retention rate for customers, which means they have seen a mix of increased number of customers and more subscriptions sold per customer. The growth comes mainly from new and larger customers.
Of its 10,650 customers, 2,075 of them have an annual subscription of US $ 100,000 or more. This appears to be the primary target for the business, as large clients provide more stable income.
A little over a week ago, you might have seen that Okta released their quarterly result to the market. The initial response was not positive, with stocks falling 6.7% to US $ 222 last week. Results were mixed overall, with revenue slightly above analysts’ estimates at $ 251 million. Statutory losses, on the other hand, were 8.4% higher than expected at US $ 0.83 per share. Profits are an important time for investors because they can follow a company’s performance, look at what analysts are forecasting for next year, and see if there has been a change in sentiment towards the company. We have put together the most recent statutory forecasts to see if analysts have changed their earnings models as a result of these results.
See our latest analysis for Okta
NasdaqGS: OKTA Profits and Revenue Growth June 2021
Based on the latest results, the consensus of Okta’s 25 analysts is forecasting revenue of US $ 1.22 billion in 2022, which would reflect a major 35% improvement in sales from the past 12 months.
Digging deeper, we find that analysts’ estimates are in line with management guidance released on May 26, 2021. The reason for this increase is the estimated revenue growth driven by the newly acquired Auth0 service.
Losses are expected to rise 45% to US $ 3.57 per share. Prior to this earnings announcement, analysts had modeled revenues of $ 1.09 billion and losses of $ 2.76 per share in 2022. As a result, there was a marked shift in sentiment, with analysts saying raised this year’s earnings estimates, while at the same time increasing their loss per share to reflect the cost of achieving that growth.
The consensus price target remained unchanged at US $ 272, appearing to suggest that the higher expected losses should not have a long-term impact on valuation. The consensus price target is only an average of individual analysts’ targets, so it might be helpful to see the breadth of the range of underlying estimates. There are variations of perceptions on Okta, with the most bullish analyst valuing it at US $ 300 and the most bearish at US $ 235 per share. With such a narrow range of ratings, analysts seemingly share similar views on what they think the company is worth.
Looking at the big picture now, one of the ways we can understand these forecasts is to see how they stack up against both past performance and industry growth estimates. Analysts certainly expect Okta’s growth to accelerate, with a forecast of 50% annualized growth by the end of 2022 ranking favorably against the historic growth of 37% per year over the three last years. Compare that with other companies in the same industry, which are expected to increase their revenues by 15% per year. It seems obvious that while the outlook for growth is brighter than in the recent past, analysts also expect Okta to grow faster than the industry as a whole.
The bottom line
The most important thing to note is the forecast of an increase in losses next year, suggesting that all may not be well at Okta. Fortunately, they have also improved their revenue estimates and expect revenue to grow faster than the industry as a whole. There has been no real change to the consensus price target, suggesting that the intrinsic value of the company has not undergone any major changes with the latest estimates.
That said, the company’s long-term earnings trajectory is much bigger than next year. At Simply Wall St, we have a full range of analyst estimates for Okta through 2026, and you can view them for free on our platform here.
Remember that there can still be risks. For example, we have identified 4 warning signs for Okta of which you should be aware.
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Simply Wall St analyst Goran Damchevski and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material.
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