On Tuesday, Deutsche Bank (ETR:DBKGn) revised its outlook on Okta, Inc (NASDAQ:OKTA) stock, shifting its rating from Buy to Hold and adjusting the price target to $85 from the previous $115.
The decision reflects the bank's latest analysis and field inputs, suggesting a more cautious stance toward the identity management company's near-term prospects.
In a statement, the firm indicated that recent feedback on Okta has been inconsistent, prompting the downgrade. The analyst noted that the anticipated value from Okta's offerings might take several quarters to materialize, potentially making the stock more appealing later into the next year.
The firm also cited macroeconomic factors affecting customer growth and market user headwinds, as well as challenges from security breaches and increased competition.
These factors are believed to be impacting customer expansion and the acquisition of new logos across Okta's core Workforce Identity Cloud, as well as its newer Identity Governance and Administration (IGA) and Privileged Access Management (PAM) products.
The revised price target is based on a discounted cash flow (DCF) analysis, which now values the company at 22.9 times its estimated enterprise value to unlevered free cash flow (EV/uFCF) for the calendar year 2025. Deutsche Bank also adjusted its forecast for Okta's fiscal year 2026 subscription revenue growth to 8% year-over-year, a decrease from the market's expectation of 10.5%.
The bank's updated stance on Okta reflects caution regarding the company's short-term revenue growth amidst a challenging competitive landscape and operational hurdles. The new price target and rating change highlight the analyst's view that the market may have previously held overly optimistic expectations for Okta's performance in the coming year.
In other recent news, Okta Inc (NASDAQ:OKTA). reported a 16% year-over-year revenue increase to $646 million, largely due to a 17% rise in subscription revenue. However, Okta's third-quarter calculated remaining performance obligations (cRPO) guidance fell short of projections, leading to several financial adjustments.
Various analyst firms have adjusted their outlook on Okta in response to these developments. Citi cut its stock target for Okta to $90, while maintaining a Buy rating, following the launch of new products and advancements, including a significant identity security standard called IPSIE.
Similarly, Canaccord Genuity (TSX:CF) trimmed its price target for Okta to $82, keeping a Hold rating, after the company's annual Oktane Conference. TD (TSX:TD) Cowen, RBC (TSX:RY) Capital Markets, and Piper Sandler also revised their price targets to $110, $101, and $85 respectively.
These adjustments came after Okta's Oktane Investor Day and Oktane 2024 conference, where the company showcased new product innovations and discussed its growth strategy. These are the recent developments regarding Okta.
InvestingPro Insights
While Deutsche Bank has adopted a more cautious stance on Okta, Inc (NASDAQ:OKTA), recent InvestingPro data and tips provide additional context to the company's financial position. Despite the challenges highlighted in the analyst's report, Okta maintains a strong balance sheet with more cash than debt, a crucial factor for stability in the current economic climate. This financial strength is further underscored by the company's liquid assets exceeding short-term obligations, which could provide a buffer against the operational headwinds mentioned.
InvestingPro data reveals that Okta's revenue for the last twelve months stands at $2.45 billion, with a notable revenue growth of 18.74% over the same period. This growth, coupled with an impressive gross profit margin of 75.82%, suggests that the company's core business remains robust despite the competitive pressures noted by Deutsche Bank.
InvestingPro Tips indicate that net income is expected to grow this year, and analysts predict the company will turn profitable. This outlook aligns with the analyst's view that Okta's value proposition may take time to fully materialize, potentially making the stock more attractive in the future.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Okta, providing a deeper understanding of the company's financial health and market position.
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