What Happened?

Shares of identity management software maker Okta (OKTA) jumped 5.7% in the morning session after Morgan Stanley upgraded the stock's rating from Equal Weight (Hold) to Overweight (Buy) and raised the price target from $92 to $97. The most recent channel check conducted by the research team revealed a stabilizing demand environment and easing competition. Adding to the narrative, the analysts provided constructive product updates: "Further, our channel conversations have skewed positively for OIG (Okta Identity Governance), and we believe this offering could reach $100M in Annual Contract Value (ACV) by Q4."

The shares closed the day at $80.86, up 4.2% from previous close.

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What The Market Is Telling Us

Okta’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 9 months ago when the stock gained 27.7% on the news that the company reported an impressive "beat and raised quarter." Fourth quarter results outperformed Wall Street's revenue estimates, alongside strong free cash flow. Okta also provided optimistic revenue guidance for the next quarter, which exceeded analysts' expectations. Also, the company slightly raised its FY'25 outlook and now expects revenue growth of 10% to 11%, a non-GAAP operating margin of 18% to 19%, and a free cash flow margin of approximately 21%. Management highlighted the conservatism baked into the guidance given the "stable but still challenging macro environment." 

The outperformance suggests that the recent security incident, which was reported in October 2023 and affected some of the company's products, had minimal impact on its financial position, reassuring investors. Also, the company is focused on optimizing its cost structure following the recent layoff, which affected 400 positions. 

Going forward, Okta is focused on growing its headcount in lower-cost regions such as India and Poland. Overall, this was a strong quarter for the company, providing more reasons for investors to stay positive.

Okta is down 7.7% since the beginning of the year, and at $80.34 per share, it is trading 27.9% below its 52-week high of $111.49 from March 2024. Investors who bought $1,000 worth of Okta’s shares 5 years ago would now be looking at an investment worth $658.79.

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