Part 1: Okta Deep Dive Refresh

Despite the rivalry with Microsoft and other AM players, Okta continues to be the best choice for enterprises leading a cloud-first, multicloud, and multi-OS environment strategy

Here we share the Executive Summary of our recent report on $OKTA. For the full report please visit convequity.com.

For institutional investors interested in a chat about Okta feel free to book a 30 minute call with us to discuss. Alternatively, send an email to jordan@m.convequity.com to share your research/information requirements.

Executive Summary

Identity. Cybersecurity. Cloud

Identity is increasingly becoming front and centre of cybersecurity, which in turn is becoming increasingly integral to overall business success for all types of organisations. Additionally, as continued cloud expansion makes orgs more vulnerable to attacks, identity is often the fundamental block for building more effective and easier to manage cybersecurity defenses. This deep-seated tailwind has a long way to go and is very supportive for the long-term thesis on Okta.

Okta is the only identity player of its kind. No other vendor has the massive scale and customer base as a purely cloud-native, platform agnostic, and identity-focused SaaS player. Hence, by a wide margin, Okta is best positioned to capitalise on the cloud adoption and expansion trends.

Buy vs Build

The other component of the long-term thesis is the buy vs build conundrum. Many IT admins and developers are still attempting to build customised authentication, authorisation, and admin workflows from scratch. As these aspects are not at the core of the application in question, and because they take up many resources due to the complexity of some of these identity-related, open-source protocols/standards, over time, building from scratch is incredibly value destroying for an enterprise. It makes so much more sense to pay Okta to do the basics in SaaS form and provide the programmability with SDKs in PaaS form. This drastically cuts costs, improves security, speeds up time to market, and overall generates added value for the business.

Tougher Comp

Compared to two years ago, Okta is experiencing tougher competition. Though despite the moderate competition, we believe the company's business attributes will help them continue to outcompete. The company's DNA entailing deep open-source utilisation, software extensibility, and its cloud-native-ness, ought to empower them to navigate the landscape quicker than rivals.

However, investors should be aware that Okta is not the best choice for every org seeking AM (Access Management) solutions. Microsoft is a better choice for orgs with on-prem Active Directory implementations that are also using Azure as their only cloud; ForgeRock is a good choice for orgs that still have their largest footprint in on-prem; OneLogin might be more affordable for SMBs with very simple AM requirements; or CyberArk's AM offerings might be more suited for existing CyberArk PAM customers.

When Okta is the Number 1 IAM Choice

Though, when it comes to enterprises leading a cloud-first, multicloud, and multi-OS environment strategy, Okta is undoubtedly the number 1 IAM (Identity & Access Management) choice. And when one considers the trends of cloud, multicloud, and the growing presence of other OS environments (e.g., Apple), Okta is nicely positioned for the long-term.

Okta's Growth Drivers

In the intermediate term, IGA and CIAM are Okta's growth engines, and on a longer horizon PAM is too. We discuss these in Part 2.

Intermediate Term Investor Considerations

In the intermediate-term, Okta's shareholder dilution is expected to be a drag on share price performance. In 2021, Okta acquired Auth0 for $6.5bn, all in stock, which almost doubled the SBC/Revenue %. It is trending downwards, but not likely to normalise for several quarters.

Investors should also note that Okta has recently made operating changes, which has boosted the share price during the past few months. However, these changes are not as drastic as many other software firms (e.g., Meta) that have experienced similarly sharp decelerations in growth. Therefore, the share price rise since Nov-22 might have been overdone.

From a valuation perspective, we consider Okta just about in the fair value range, and based on the aforementioned concerns, we don't expect the stock to continue rising at this rate in the intermediate term. However, we are personally ready to buy on any significant drops in price.

For the full report please visit convequity.com.