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Okta Loses Steam on Rising Competitive Threat from Microsoft

After a remarkable run initially, shares of newly listed company, Okta, Inc. OKTA have lost momentum of late. The stock touched its lowest level of $22.33 in yesterday’s trade since it went public on Apr 7, 2017.

Notably, at yesterday’s closing price of $22.50, the stock has underperformed the Zacks Internet Software-Services industry since it began trading. While the industry gained 8.5%, the stock lost 4.3% over the same time frame.


What’s Bothering Investors?

The recent pessimism surrounding the stock may be due to increasing competitive threat from Microsoft MSFT, which is currently the biggest player in the Identity Access as a Service (IDaaS) market. Microsoft is smartly selling its IDaaS solution by bundling it with its Azure Active Directory Premium solution, which has been seeing growing adoption across enterprises.

Additionally, Microsoft is ahead of Okta on the pricing front too. As per sources, the company sells the Azure Active Directory Premium P1 and P2 plans at $6 and $9 per month, respectively. This is significantly lower than Okta’s pricing of $14 a month per user. This could pose a threat to the adoption of Okta’s offering.

Apart from this, investors are also worried about competition from existing players such as Salesforce CRM and IBM IBM which are expanding their offerings. Being a very small company compared to the likes of Microsoft, IBM and Salesforce, it will be very tough for Okta to gain market share.

We note that since Okta is a new name in the business, its spending on sales and marketing also remains quite high. This increases its operating expenses and exposes it to losses. Though its loss per share narrowed in first-quarter 2018 due to an increase in the number of outstanding shares post its initial public offering, the non-GAAP net loss widened year on year by 3.62%.

Nevertheless, we believe that Okta can bounce back given its solid customer base, which includes the likes of National Geographic, LinkedIn, Adobe and Workday, and its leadership position in the IDaaS segment. Gartner named it the leader in the segment for three consecutive years.

Currently, Okta has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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