On Thursday, TD (TSX:TD) Cowen reaffirmed its hold position on Okta, Inc. (NASDAQ:OKTA) with a steady price target of $110.00.
The decision followed Okta's second quarter results for fiscal year 2025, which showed a 16% year-over-year revenue increase to $646 million, slightly surpassing consensus estimates. Subscription revenue climbed by 17%, contributing to the overall growth. The company's calculated remaining performance obligations (cRPO) also exceeded expectations at $1,995 million, a 13% year-on-year rise.
Okta's non-GAAP operating margin reached 22.9%, outperforming consensus by 330 basis points, attributed to increased sales volumes and stricter cost control measures. This led to an adjusted earnings per share (EPS) of $0.72, which was $0.11 higher than the consensus.
Free cash flow (FCF) stood at $78 million, with a 12% margin, well ahead of the anticipated $32 million at a 5% margin, driven by enhanced operating profitability and improved collections, as indicated by a 53-day days sales outstanding (DSO).
Despite these positive financial indicators, Okta's market penetration showed signs of deceleration. The number of customers with annual contract values (ACV) over $100,000 grew by 10% year-over-year to 4,620, marking a slowdown from previous rates. The overall customer growth rate also slowed to 5% year-over-year, with a total of 19,300 customers. Furthermore, the dollar-based retention rate slightly decreased to 110%.
Management's outlook for the third quarter and full fiscal year 2025 suggests cautious expectations amidst a challenging macroeconomic environment. The cRPO growth projection for the third quarter is set at 9% year-over-year, reaching approximately $1,990 million, which is slightly below the consensus of $1,993 million.
Moreover, the full-year revenue forecast was only modestly increased by $25 million to a midpoint of $2,560 million, despite the solid performance in the second quarter. This conservative guidance implies that revenue growth could slow down to the low teens or high single digits by the fourth quarter, even as the demand for identity security remains robust.
In other recent news, Okta, Inc. has seen a series of adjustments in its stock outlook from major financial firms. Wells Fargo (NYSE:WFC) has reduced its price target for Okta to $90, maintaining an Equal Weight rating, due to a forecasted slowdown in the company's growth. This comes despite Okta's successful quarter, with CRPO reaching $1.995 billion, reflecting a 13% year-over-year growth.
Meanwhile, JPMorgan (NYSE:JPM) has also lowered its price target for Okta to $105, citing mixed financial guidance and challenging macroeconomic conditions.
Evercore ISI initiated coverage on Okta with an Outperform rating and a price target of $122.00, acknowledging the company's strong performance but also noting potential macroeconomic pressures.
These recent developments suggest that Okta is navigating a complex economic landscape with a cautious yet optimistic outlook.
InvestingPro Insights
TD Cowen's hold position on Okta, Inc. is supported by several key financial metrics and projections that offer a mixed view of the company's future performance. According to real-time data from InvestingPro, Okta has a market capitalization of $16.24 billion, reflecting its significant presence in the cybersecurity sector. Despite not being profitable over the last twelve months, analysts are optimistic, predicting that the company will turn a profit this year, a sentiment echoed in the company's adjusted EPS of $0.72 for the second quarter.
InvestingPro Tips highlight that Okta holds more cash than debt on its balance sheet, which is a positive sign for financial stability, and its liquid assets exceed short-term obligations, indicating good liquidity management. However, with a negative P/E ratio of -57.75 and an adjusted P/E ratio of -54.43 for the last twelve months as of Q1 2025, the company's valuation is challenging, particularly in a market that is increasingly looking for profitability. The revenue growth of 20.45% for the last twelve months as of Q1 2025 is impressive, but investors may be cautious given the anticipated slowdown in growth. Additionally, the company's high gross profit margin of 75.15% suggests it maintains strong pricing power and cost efficiency in delivering its services.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available at InvestingPro, including insights on Okta's expected net income growth, potential profitability this year, and its historical return over the last decade. These additional insights can provide a more comprehensive understanding of Okta's financial health and future prospects.
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