Update: The article and headline were updated to include rating action by BMO Capital Markets
Okta (NASDAQ:OKTA) stock fell ~19% premarket on Thursday after J.P. Morgan downgraded the stock to Neutral from Overweight following the company's FQ1 results.
The firm said Okta remains an Identity market leader, adding however that macro is putting incremental pressure on growth.
Okta reported revenue and operating income over the firm's expectations for Q1, increased full-year revenue outlook and increased FCF margin targets for this year. However, macro concerns continue to take a toll as Okta manages through a sales reorganization in a challenging environment.
J.P. Morgan analysts noted that Okta's Customer growth decelerated to 14% Y/Y. Average subscription revenue per customer increased +9% Y/Y, while dollar based retention fell to 117% from 120%. The company also guided to lower NRR with cRPO deceleration to 14%-15% Y/Y next quarter.
The San Francisco-based identity solutions provider was able to realize a third quarter in a row of better sales retention and cross-sell rates were strong during Q1. However, management noted that macro uncertainty across SMB and enterprise remains a headwind for new logo growth and upsell traction in the installed base, according to the firm.
Additional macro-driven deterioration is also expected ahead. J.P. Morgan analysts added that they have adjusted the revenue estimates slightly higher for FY24 but deterioration of leading KPIs and expectations of ongoing macro pressure has led their forecast lower for subsequent periods.
The firm noted that it continues to see Okta as a leader in its markets and well positioned to benefit from Identity moving to the cloud in longer term. However, with growth expected to decline in near term, and cash flow not yet at levels to support valuation, it sees more favorable risk-reward elsewhere within its coverage.
BMO Capital Markets rating action
Meanwhile, BMO Capital Markets cut its rating on Okta's stock to Market Perform on the view that mid-teens type of growth or lower leaves limited upside in the shares.
BMO analysts noted that the firm's downgrade was due to two reasons 1) limited upside to current FY24 CRPO/ revenue/billings estimates, and 2) limited multiple upside.
The analysts added that as when it gets closer to year-end, they expect to revisit their views on the potential lift from IGA/PAM versus the run rate of the core identity business.
BMO cut its target price on Okta to $85 from $94.
OKTA -19.44% to $73.23 premarket June 1