Okta stock surges more than 25% as analysts approve of company’s profit heading

Late Wednesday, the company not only reported a strong quarter, but it forecast profitability on an adjusted basis for the fourth quarter and for fiscal 2024. Over the course of a quarter, the strongest driver for the company’s swing to profitability has been a refocusing of it salesforce, which had gained an already functioning one from its $6.5 billion acquisition of identity-platform Auth0 (pronounced “Auth Zero”), which closed in May.

Before the call with analysts, Okta Chief Executive and co-founder Todd McKinnon told MarketWatch there had been confusion on what products to sell to customers and when to pitch them. He noted the company is taking steps to refocus sales. Okta primarily makes software that helps authorized employees access applications on their corporate networks.

McKinnon also told MarketWatch he’d announce an outlook that promised a profitable fiscal 2024 (Okta caps its fiscal year — currently FY 2023 — with a January ending quarter), even with macroeconomic headwinds.

“We’re thinking a pretty conservative assumption that the macro is going to get worse before it gets better, so that’s definitely factored into the guide,” McKinnon told MarketWatch.

On Thursday, Jefferies analyst Joseph Gallo, who has a buy rating and an $80 price target on the stock, called the report a “Ray of Sunshine In This Gloomy Earnings Season.”

“We don’t discount the work ahead, but Okta has a clearer vision and these results should alleviate competition fears,” Gallo said.

Many analysts worry that larger software companies like Microsoft Corp.
MSFT,
-0.18%
are eating into Okta’s market share, especially in the small- to mid-business category.

In a note titled, “Nicely Clearing Low Hurdles & Finally Cranking Up Profit Engine, with Some FY24E Surprises,” Citi Research analyst Fatima Boolani said she was sticking with her neutral rating on the stock, which “likely enjoys a relief rally on better/cleaner results and a perceived ‘kitchen-sinked’ guide.”

By a guide, Boolani was referring to the lack of any fiscal 2026 targets although she called the 2024 outlook “surprising.” The Citi analyst also said Okta made good on reining in costs and hiring, which drove the “dramatic” swing to profitability.

Of the 33 analysts surveyed by FactSet, 20 have buy-grade ratings, 11 have hold ratings, and two have sell ratings. Of those, 10 lowered their price targets, while six hiked theirs, resulting in an average target price of $77.04, compared with a previous $77.79, according to FactSet data.

In November, cloud software stocks got trashed but rebounded a bit toward the end of the month. While the S&P 500
SPX,
-0.09%
rose 5.4% and the Nasdaq Composite Index
COMP,
+7.36%
gained 4.4% in November, the iShares Expanded Tech-Software Sector ETF
IGV,
+1.11%
rose 1.6%, the Global X Cloud Computing ETF
CLOU,
+2.21%
ticked up 0.8%, the First Trust Cloud Computing ETF
SKYY,
+1.74%
fell 2%, and the WisdomTree Cloud Computing Fund
WCLD,
+2.96%
dropped 6.9%.

For the year, the S&P 500 is down 15%, the Nasdaq is down 27%, the IGV is down 31%, the CLOU is off 36%, the SKYY has fallen 39%, and the WCLD has plummeted 49%.