Why Okta Stock Is Diving Today

view original post

What happened

Shareholders of Okta (OKTA -11.11%) lost ground to the market early Monday, with shares diving 10% by 11 a.m. ET compared to a 2% slump in the S&P 500. The decline pushed the specialist in digital identity-management software deeper into negative territory so far in 2022. Shares are down nearly 60% this year compared to a 14% drop in the wider market.

The slump came as investors continued to move away from high-growth businesses that have yet to demonstrate stable earnings growth.

Image source: Getty Images.

So what

Okta wasn’t the only cloud services company caught in the downtrend, today or in recent weeks. Peer cybersecurity stocks including Palo Alto Networks fell hard in early trading. The wider Nasdaq index, which includes many tech giants, fell far harder than the S&P 500, down about 3% in early trading.

It’s true that Okta has fallen harder than many of its software peers. But investors are worried about a growth slowdown ahead after rapid growth through earlier phases of the pandemic. Okta is also trying to integrate the massive Auth0 portfolio into its business, and that acquisition could reduce profitability, and earnings power, over the short term.

Now what

Investors will get some insight into cybersecurity industry trends when Palo Alto reports its first-quarter earnings results after the market closes on May 19. Okta doesn’t issue its first-quarter update until June 2, and that report is expected to show sales of about $390 million and continued net losses.

Hitting that result would mean impressive sales gains of about 55%, with help coming from organic growth and the new Auth0 acquisition. But Okta’s stock might still see pressure if management reduces its fiscal 2023 outlook or continues to forecast a third consecutive year of losses.

Investors were happier to accept that red ink in earlier phases of the pandemic, but they have become more demanding in recent months as fears rise of an economic slowdown.