Buy Okta for cybersecurity tailwinds, this portfolio manager says

The stock may have flattened over the past year but investors should be thinking about Okta Inc (Okta, Stock Quote, Charts, News, Analysts, Financials NASDAQ:OKTA) in the cybersecurity space. That’s according to Rob Lauzon of Middlefield Capital Corp, who sees upside with expected earnings growth for the company.

Okta, a cloud-based identity software company with a market cap of $40 billion, has been hanging around the $250 per share mark for about a year, which has been unusual for a stock that had done pretty well nothing but head north since the company’s IPO in 2017. OKTA posted gains of 87 per cent and 115 per cent, respectively, in 2019 and 2020 but this year the stock is currently up about two per cent. That’s not a huge problem, as much of the high-growth tech space has taken it on the chin in 2021, but for a company like Okta, the future should be very bright, Lauzon said, since they’re in the right sector to see growth for years to come.

“Okta is cybersecurity for businesses, and as we know, [cybersecurity] is a big spending priority for chief tech officers at all enterprises,” said Lauzon, speaking on BNN Bloomberg on Monday, where he labelled Okta as one of his Top Picks for the 12 months ahead.

“There’s a big focus right now on workplace technology stocks now that everyone’s coming back to the office or working hybrid or working from anywhere. Businesses are adapting and their IT needs to adapt, and Okta monitors your identity and access management for for companies,” Lauzon said.

“So, as an employee, it’s going to monitor how I login, whether it’s on my iPad, my iPhone, my desktop, my laptop, wherever I am on and whatever location to make sure I am who I say I am and that I have access to the appropriate areas within the cloud or the servers of the company based on my seniority. Also, there are customers who have built more onto their cybersecurity software, where customers and other stakeholders within an enterprise are coming in to do e-commerce transactions or are doing B2B business transactions, to make sure those nodes are secure,” he said.

Okta’s business certainly has been growing. The company registered a 57 per cent revenue growth rate over its latest quarter, hitting total revenue of $316 million. Of that, subscription revenue increased by 59 per cent to $303 million. Management is expecting more of the same going forward and has called for $325 million in revenue for the next reported quarter, the company’s fiscal third 2022, while for the full fiscal year the call is for revenue between $1.243 and $1.250 billion, which would represent a growth rate of 49-50 per cent.

Okta is pumping its recent acquisition Auth0, a customer identity business bought this year for a whopping $6.5 billion, with management saying at its recent annual showcase of new products, held on October 13, saying that delivering safe and secure digital experiences across today’s devices and applications is becoming more and more complex and Auth0 is playing a central role in what Okta has to offer on that front.

“Identity sits at the core of all digital experiences and provides the security, agility, and usability needed to quickly adapt to any current or future challenge,” said Todd McKinnon, CEO and co-founder, Okta, in a press release. “Together, Okta and Auth0 deliver the most comprehensive approach to customer identity. We are investing in and supporting both platforms, and we are proud to empower our customers to choose with confidence.”

Lauzon said the lull in the share price could preclude a growth spurt ahead for OKTA.

“The stock has done quite well over the last three to five years. We continue to like it. It lagged a bit over the last 12 months but I think there’s going to be another big earnings growth [period] ahead of the company over the next couple of years as they’ve bolted on new products to their platform,” Lauzon said.

Okta recently announced a partnership with Canadian cybersecurity outfit BlackBerry, one which will see Okta join a list of companies linked up to BlackBerry’s extended detection and response (XCR) network. The XCR ecosystem allows for threat identification across partners’ platforms.

“Simply put, identity must be a critical component of your overall security strategy. With Okta and BlackBerry working together we can improve security, visibility and event correlation for users, endpoints and networks,” said Lee Tschetter, Director of Technical Strategy at Okta, in a press release. “Our mutual customers are already benefiting from the integration between Okta and the BlackBerry unified endpoint security (UES) platform, so this investment into XDR will further enable any organization to provide improved security, and a best-in-class user experience, in an increasingly complex work environment.”