Okta Sinks Despite Earnings Beat With Stock Up 89% YTD

Shares in Okta (OKTA) dropped 4% in Thursday’s after-hours trading, despite the company reporting solid earnings for the fiscal second quarter.

Don't Miss Our Christmas Offers:

Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter

Specifically, Q2 Non-GAAP EPS of $0.07 beat Street estimates by $0.09. However, GAAP EPS of -$0.48 fell short of consensus forecasts by $0.07.

Revenue came in strong at $200.45M, easily beating Street expectations by $14.08M and increasing 42.7% year-over-year.

Meanwhile, adjusted gross margin of 79% came in a tad higher than the consensus of 77.8%, with billings rising 27% year-over-year to $198.1M (vs consensus of $188.5M).

The cloud-based identity specialist also delivered record free cash flow of $37M. Remaining Performance Obligations (RPO) was $1.43B, up 56% year-over-year, with current RPO at $684.5M (up 48%).

“The three mega-trends that have been driving our business for the past several years – the adoption of cloud and hybrid IT, digital transformation, and zero trust security – are all being accelerated globally by the current environment,” commented Todd McKinnon, CEO of Okta.

He continued: “Organizations are re-evaluating their roadmap to modernize their identity systems and Okta’s platform is the linchpin of the new cloud technology stack.”

As a result, Okta raised its FY21 revenue guidance to $800-$803M from the prior guide of $770-780M on the solid Q2 beat.

Following the earnings report, Canaccord Genuity analyst Michael Walkley reiterated his hold rating on the stock, but bumped up his price target from $190 to $218.

He noted that Okta’s Q2 results were strong, with any pandemic-related headwinds more than offset by the accelerated tactical needs of those solving for distributed work requirements.

“While Okta is exceptionally well run, uniquely positioned for long-term success, and has a strong balance sheet with $2.3B in gross cash, we prefer to add to positions on any pullbacks” the analyst explained.

With Okta shares up over 100% from the March 20 close, Walkley believes the shares could shed some gains as a potential source of funds with investors rotating to under-performing sectors that are starting to reopen. (See OKTA stock analysis on TipRanks).

Overall, Okta shows a cautiously optimistic Moderate Buy Street consensus with 9 recent buy ratings vs 6 hold ratings. Due to the recent rally, the average analyst price target of $209 indicates shares could pull back 4% from current levels.