OKTA Stock Forecast: OKTA Shares Plunges 30% in one Session on Disappointing Future Guidance

OKTA Stock Forecast: OKTA Shares Plunges 30% in one Session on Disappointing Future Guidance
OKTA Stock Forecast: Shares of Okta Inc (Nasdaq: OKTA) are expected to trade between $57.51 and $63.24. The overall recommendation is Sell.

Okta Inc Stock Latest Price for 08.09.2022

Share Volume8.5 MHigher
Average Share Volume4.28 MNA
Forward PE (1 Year)NA

Okta Inc Stock Performance Chart

Stock Name1 day5 day1 Month6 MonthYTD1 Year
Okta Stock-0.11%-35.24%-43.49%-60.78%-72.81%-77.14%

Okta Inc Stock Forecast: Support and Resistance

Investing.com$59.81(S3)$61.55 (R1)Sell
Bar chart$57.08(S3)$62.32(R1)Sell

Okta Inc Stock Forecast: Google Trends

The search volume of OKTA stock is higher for the day.

Okta Inc Stock Forecast: Latest video

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It has not been a great year to be Okta Inc investors. The shares are down by more than 72% since start of 2022 (as of 6.09.2022). More than 60% of this fall has come in last six months. While there are concerns for overall market also, but Okta Inc shares have underperformed the overall market. S&P 500 has fallen only 18.5% and Nasdaq has fallen only 27% since start of 2022.

While the shares with rich valuations and company announcing not so good results have faced the wrath of investors, Okta recent results have above par and have also beaten estimates in many cases. Despite that, Okta shares fell by more than 30% in a single day on 1st September 2022. The reason behind was the announced 2nd quarter fiscal results on 31st August 2022.

In this article, we will learn about the recent dramatic fall in Okta Inc and the reasons behind it, will also look at positive and negative factors for company going forward and whether Okta shares are a buy, sell or hold at this point?

Okta Stock Forecast: Reasons Behind 33% Fall in Okta Share Prices in a Single Day

Okta shares closed $91.40 on 31st August 2022, opened much lower at $69.16 at 9:30 am on 1st September 2022, and fell further to close the day at $60.59 which amounts to more than 33% fall in a single session. The primary reason behind this fall was the second quarter results announced by company after market hours on 31st August 2022. Let us dissect the results to better understand the fall.

The results were better than expected. Revenue in the quarter came at $451.8 million which is 43% up from year to year. The analyst estimates were only $430.6 million. Similarly on the bottom line, the adjusted loss was only $0.10 per share which was better than results a year ago in the same quarter and was also way better than analyst estimates of loss of $0.30

The worrying sign is that remaining performance obligations (RPO), backlog just grew 25% to $2.79 billion. Similarly, current RPO which indicates contracts to be fulfilled next year increased only 36% to $1.5 billion. Both above indicators signal towards the decelerating growth.

The main reason being the fall is management’s commentary with the earnings call. Okta discussed challenges in integrating Auth0 sales force, the customer identity software company it acquired in 2021. It stated that it experienced greater than expected attrition from Auth0 sales force and some confusion in the field.

The company acquired Auth0 in March 2021 at a valuation of nearly $6.5 billion. The questions were raised regarding this acquisition as Auth0 was valued $1.9 billion just few months back before acquisition. At the time of acquisition, Okta gave financial target of revenue of $4 billion and 20% free cash flow margin by 2026. Now, on the earnings call on 31st August 2022, it said it is re-evaluating the target of 2026 due to integration issues of Auth0, reduced hiring plans and headwinds related to macroeconomic environment.

The investors will get better clarity of the long-term plans during the results update of Q3, but it seems to be prudent to address the ongoing issues with the investors, and it kind of builds the trust on the management that they are addressing the issues upfront.

Okta Stock Forecast: Bull Case

While the management commentary has spooked the investors, but there are so many positive things also with Okta Inc. I strongly believe that the reaction on 1st September 2022 was overdone. The management addressed the real issues and the fall of 30% is not justified on above par results. True that there are issues with integration of Auth0, but 43% jump in the revenue can not be ignored.

Many analysts upgraded the rating seeing this downfall. Guggenheim’s John DiFucci upgraded the rating from sell to neutral. He said that the integration issues are already factored in the price and there is no another reason to sell the stock right now. However, he lowered the target price from $75 to $65.

The company has replaced the sales reps who have left and the new hires are being trained. Also, the company has changed its go to approach in the market and is trying to make it clearer to potential customers which product is best suited for them, Okta or Auth0.

The best thing happened for investors with the recent fall is that it has reduced the valuations of Okta Inc significantly. Now, it trades as cheap as it has even been with price to sales ratio of just over 6.

Okta Stock Forecast: Buy, Sell or Hold

On top of 33% fall on 1st September 2022, Okta share prices fell another 6% on 6TH September. The reason being that two new analysts Patrick Colville of Deutsche bank and Shebly Seyarfi of FBN securities have significantly reduced their target price for the Okta stock. While Colville feels that it is worth $90, down from his earlier $130 target and Seyarfi price tag is $110 from his previous target of $160. While both have maintained the buy ratings on Okta shares.

It is true that investors need to be cautious with the loss-making companies in this bear market and high inflation environment. Okta reported $240 million operating loss in the first quarter which is nearly equal to 58% of the sales. In the second quarter, they are adjusting their long-term revenue estimates. All these factors did not give confidence to investors leading up to sell in bulk and 30% fall in a single day.

But it created opportunity for the long – term investors. Those who want to create fresh positions in Okta Inc, right time is just around the corner. Those who hold it, should at least hold it till 3rd quarter results, as there is limited downside associated with the stock. But if Okta addressees these short-term issues and get back on track, there is possibility of major upside from $60 mark.
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Vineet Agarwal