Okta's Security Breach Takes A Toll Despite Q3 Beat, Analysts Divided

Needham analyst Alex Henderson reiterated Okta Inc OKTA with a Buy and a $100 price target. Okta announced that the October breach impacted more customers and systems than initially indicated before Okta's scheduled release; the stock sold off on this news.

However, consistent with his preview, the original breach does not appear to have impacted results, and despite cautious commentary from most of the Street, Okta's 21% revenue growth beat guidance and the consensus by 4%, and management raised the FY24 outlook.

Accordingly, the washed-out shares rose on this news. Henderson expects Q4 revenue of $585.9 million and Adj. EPS of $0.50.

Scotiabank analyst Patrick Colville downgraded Okta from Sector Outperform to Sector Perform. The analyst noted that Okta is the innovation leader in workforce and customer identity management.

However, the analyst is concerned that the expanded scope of the customer support management breach could make it more difficult to engage new logos, increase churn slightly, and impact the effectiveness of cross and upsell efforts.

Okta's new 10% FY25 revenue growth target is unlikely to be revised upwards, and don't expect a reacceleration even if IT spending recovers. Colville expects Q4 revenue of $586 million.

RBC Capital analyst Matthew Hedberg maintained an Outperform and lowered the price target from $100 to $95.

Okta delivered solid Q3'24 results in a stabilizing macro environment as FY24 guidance moved higher, though cRPO guidance was again lower as he feels an upside remains likely.

The focus of the call was mainly on the October security incident as management prioritizes strengthening their internal security posture for the next 90 days while some product launches push.

As such, the preliminary FY25 revenue guide was below expectations, though likely prudent, and FCF was ahead. Hedberg expects Q4 revenue of $586 million (prior $577 million) and Adj. EPS of $0.50 (prior $0.36).

BMO Capital analyst Keith Bachman reiterated a Market Perform and lowered his target price to $80 from $90.

Previously, Bachman suggested that consensus FY25 estimates needed to move lower. However, the recent breach contributed to a more significant reduction in FY25 revenue estimates than anticipated.

While the FY25 guide seems conservative, he can't confidently say that the FY25 guide is no worse than 10% y/y growth. Bachman expects Q4 revenue of $586 million (prior $578 million) and Adj. EPS of $0.51 (prior $0.35).

JMP analyst Trevor Walsh maintained a Market Perform following the earlier-than-expected Q3 results. An early look at FY25E suggests revenue deceleration but significantly raised earnings expectations.

The company provided additional disclosures for the recent breach, advising that the attacker accessed "the names and email addresses of all Okta customer support system users," all leading shares to close down ~3% due to further reputational impacts of the breach and conservative FY25 outlook. Walsh expects Q4 revenue of $585.1 million and EPS of $0.51.

Oppenheimer analyst Ittai Kidron reiterated an Outperform. Okta delivered solid 3Q results, highlighting improved sales execution, high gross retention, and strong upsell and cross-sell activity with existing customers despite macro headwinds.

However, the recent security breach led to a slowdown in activity exiting the quarter and will likely impact growth in the near term. While disappointed with the recurring security issues, Kidron noted Okta has ample cross-sell levers to stabilize DBNRR. 

Kidron expects Q4 revenue of $586.2 million (prior $578.3 million) and Adj. EPS of $0.51 (prior $0.36).

Truist analyst Joel P. Fishbein Jr. reiterated a Hold and cut his price target to $70 from $75. OKTA reported substantial 3Q24 numbers ahead of his estimates and Street expectations and revised their topline and higher profit guidance for FY24.

However, preliminary FY25 topline guidance was lower than consensus (10% YoY growth vs. 15.3% YoY growth), reflecting a deceleration in its business while exceeding consensus estimates for profitability and FCF.

In addition to its financial results, OKTA disclosed that the breach incident that occurred in September was much more widespread than initially reported. Fishbein expects Q4 revenue of $586 million (prior $579 million) and Adj. EPS of $0.51.

Mizuho analyst Gregg Moskowitz reiterated a Buy and a price target of $80, down from $85. OKTA executed well in 3Q, as revenue growth of 21% Y/Y easily surpassed the Street's 16% forecast.

However, the company disclosed yesterday morning that its latest October breach was much more pervasive than initially anticipated. Also, OKTA's initial FY25 revenue outlook was disappointing, although its margin and EPS outlook were good, and noted that the revenue guide looks derisked.

Okta remains a clear leader in the critically important identity management market, as per the analyst. Moskowitz expects Q4 revenue of $586 million (prior $580 million) and Adj. EPS of $0.51.

Price Action: OKTA shares traded lower by 4.90% at $67.30 on the last check Thursday.