Shares of Okta (OKTA, Financial) saw a significant drop today, plummeting by 15.79%. This sharp decline comes after the company reported third-quarter results that beat top-line estimates but fell short on key guidance metrics.
Okta's revenue increased by 16% to $646 million, surpassing the estimates of $632.9 million. Current remaining performance obligations (cRPO) grew by 13% to $2 billion. Adjusted operating income surged from $59 million to $148 million, while GAAP net income reached $29 million. Adjusted earnings per share (EPS) rose to $0.72, beating the consensus estimate of $0.61.
Despite these impressive figures, Okta's future outlook caused concern among investors. The company projected 11% revenue growth for the third quarter, ranging between $648 million and $650 million, slightly above the consensus of $639.1 million. However, the cRPO guidance suggested a sequential decline to between $1.985 billion and $1.99 billion.
On the earnings side, Okta forecasted adjusted EPS of $0.57 to $0.58 for the upcoming quarter, a sequential decrease but above the consensus of $0.55. The full-year adjusted EPS guidance was raised to $2.58-$2.63 from the previous $2.35-$2.40, ahead of the consensus of $2.42.
From a valuation perspective, Okta's stock currently trades at $81.3 with a market cap of $13.68 billion. According to the GF Value metric, the stock is modestly undervalued with a GF Value of $103.21. Despite a strong Altman Z-score of 3.15, indicating financial stability, the company faces challenges such as insider selling and asset growth outpacing revenue growth, pointing to potential inefficiencies.
On the positive side, Okta boasts a strong Beneish M-Score of -2.84, suggesting it is unlikely to be a manipulator. Additionally, the operating margin is expanding, which is a favorable indicator for future profitability. In terms of growth, the company has seen a 16.2% revenue growth over the past year and an impressive 30.9% over the past five years.
However, investors should be cautious. Okta has no current P/E ratio due to its recent GAAP net losses, and its price-to-book ratio stands at 2.3. Despite being classified as "Speculative Growth," the stock has seen substantial price decreases over the last three years (-32.35%), indicating volatility.
In conclusion, while Okta shows several strengths in its financial performance and revenue growth, the market's reaction to its guidance and future outlook has driven the stock down significantly. Investors should weigh the company's strong fundamentals against its current valuation and future projections.
