Okta's near-term path looks less certain - Morgan Stanley

By Sam Boughedda

Okta (NASDAQ:OKTA) recently held its annual Oktane user conference, A-Day, in which the company made numerous product announcements.

Morgan Stanley analysts attended the event and told investors in a note on Friday that the event aimed to address the company's commitment to improving on recent execution challenges. However, they added that the company's near-term path looks less certain in their view.

"Key highlight for Oktane22 and Investor Day, aside from new product announcements, was observing how Okta's new go-to-market strategy was shaping up, as the company emphasized its two clouds approach: Workforce Identity Cloud and Customer Identity Cloud, powered by Auth0," wrote the analysts, who have an Equal-Weight rating and $65 price target on the stock.

"As Okta works through its sales execution challenges throughout the year, investors heading into the Investor Day were naturally zoomed in on these issues, which management addressed by highlighting the company's revamped GTM strategies and providing some updates on the integration front: sales attrition saw an improvement over Q3, and management is moderating headcount as the company enables account executives to sell across both clouds," they added.

Meanwhile, Wolfe Research analysts said in a note that Okta provided a clear message that Auth0 is the foundation of Customer Identity going forward.

They reiterated the firm's Outperform rating on the stock but lowered the price target to $70 from $100 per share.

"Management also communicated that FCF and operating margins will expand in FY24, and they appear more focused on profitability going forward. However, and as expected, with no pre-announcement of 3Q results or initial FY24/new FY26 targets, the event did not provide a catalyst to shares," commented the analysts. "We continue to believe that Okta is a best-in-class asset in the early innings of an $80B opportunity. However, consensus estimates for next year are too high, and we would be buyers of shares post results if management adequately resets expectations for FY24."