BofA Initiates Coverage Of Okta With Underperform Rating, Here's What Investors Need To Know

Analysts at Bank of America Global Research initiated Okta Inc. OKTA, a “leading identity security pureplay” on Monday.

Here’s what investors need to know.

The BofA Analyst: Madeline Brooks initiated Okta with an underperform rating, with a $64 price target. Shares of Okta are currently trading around the $74.50 level.

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Slow Growth: Brooks said in a Monday note to investors that BofA expects slow growth and limited margin upside for Okta due to intense competition with Microsoft Corp MSFT and other structural challenges such as pricing erosion, channel conflicts, and high sales force attrition.

BofA is modeling 16% revenue growth over the next two years, while the Street expects 18% revenue growth.

Okta is facing increasing competition in the identity access market, Brooks said, which could lead to product commoditization and price erosion.

The company is looking to address those risks by expanding into the customer identity security market (CIAM), which is still in its infancy. Although the CIAM market is estimated to be worth $17 billion by 2026, the analyst believes there are no clear catalysts for growth and predicts a more modest 23% growth rate for Okta’s CIAM business.

Brooks also flagged missed synergies from the acquisition of authentication platform Auth0 and inflated general and administrative costs that could limit operating leverage.

BofA said Okta is facing challenges in the identity security market, including intense competition, structural issues, and limited growth potential. The CIAM market may provide some growth opportunities, but the analyst predicts that this will be more modest than expected, leading to a lower valuation for the company.

Price Action: Shares of Okta Inc are trading 2.61% lower in premarket trading Monday to $74.40, according to data from Benzinga Pro.

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