Yahoo Finance Live anchors discuss the rise in Okta shares on Jefferies Buy rating.
BRIAN SOZZI: Let's take a look at some calls of the day we're watching. Let's start with Okta. Jefferies initiated coverage of the stock with a buy rating and a $90 price target, citing share overreactions that could make the cloud company an attractive entry point. I mean, guys, this price target, $90, looking about for 48% upside from current levels. The basic case here is this, according to Jefferies. They say the opportunity is never clear. They say the company's guidance reflects all the bad news, and I'll mention that in a second.
They also note the current-- the stock is currently trading below the base value of its recurring revenue. So it sounds like a valuation play. But on to some of those problems, keep in mind this is a company that came out a couple of weeks ago, reported earnings. The stock got slammed because of challenges integrating a key asset aught 0, aught 0, I should say, integrating that sales team. I asked Okta's CEO and co-founder, Tom McKinnon about this at the Goldman conference this week. Here's what he said.
TODD MCKINNON: Now we have one joint sales team, so a customer has one sales rep. So that one sales rep sells all of the products across the entire portfolio. So that's powerful, but I think that takes a little bit more time than we expected for that sales rep to come up to speed on how to sell that broad portfolio. And those are some of the things we're addressing tactically in the near term.
BRIAN SOZZI: So Todd acknowledging there that it's going to be-- it's not going to change overnight in terms of getting the sales teams out there with a cohesive message and selling things the right way. And maybe that's something this note doesn't fully appreciate, I think.
BRAD SMITH: Yeah, I tend to agree that this has been oversold. Okta is really sitting at this intersection of some of the different cloud access points and the privacy and security that any company that has ramped up the number of licenses or applications that they've seen necessary to really engage in a hybrid work capacity that they've needed to layer in.
And Okta, for what they've provided, I think there's a major opportunity in the market. It's just whether or not they continue to see that same growth rate. They're not going to see the same growth rate that they did, of course, with that pull forward in demand that so many of the ERP companies or even access point companies had seen on the onset of the pandemic.
But going forward, where are you going to see them layer on even more of the ability to sell into the existing client base? And do they have to make an acquisition in order to do so? And what kind of company would that be towards? And so I think that's one of the larger questions. You could see more capital go out the door in that instance.
But as of right now, I mean, down 72% year to date. So I mean, it's certainly been pummeled over the course of this year. But I think there's still a lot of opportunity here.
JULIE HYMAN: I have an easy way, Okta to double its business overnight.
BRAD SMITH: How's that?
JULIE HYMAN: Reduce the stupid passwords from 20 characters to 10!
BRAD SMITH: It's a lot of characters.
BRIAN SOZZI: It's about protection, though.
JULIE HYMAN: Like, every three months or month, you got to come up with a new--
BRAD SMITH: New sentence.
JULIE HYMAN: --extremely long password.
BRIAN SOZZI: Tell us how you feel today. Tell us how you feel. What was Patagonia-- what was the name again, Patagonia?
JULIE HYMAN: Yvon Chouinard. Is that 20 letters? I guess you guys all know what my new password is going to be.