Okta (OKTA) - Get Report shares fell Thursday as analysts reacted to the identity-verification software maker’s weak earnings outlook and planned $6.5 billion purchase of smaller rival Auth0 for stock, despite the company beating its fiscal fourth quarter earnings and sales estimates.
Some analysts lowered their price targets for Okta shares. After initially falling as much on 10% on Thursday morning, they have rebounded to trade down 2.6% at $234.93. Shares had soared 84% in the 12 months through Wednesday amid strong investor demand for software stocks. That compares to a 44% increase for the Nasdaq Composite in that period.
Piper Sandler cut its price target to $235 from $250, keeping its neutral rating. The tepid outlook indicates “a meaningful deceleration in growth, albeit expectations look conservative,” Piper analysts wrote in a commentary cited by Bloomberg.
And while the takeover has merits, Piper said “OKTA is reaching a scale where it should begin to throw off better free cash-flow dynamics, and we believe this transaction likely pushes that out.”
BMO Capital Markets lowered its target to $265 from $285, keeping its outperform rating. The revenue outlook was deflating, although BMO analysts, too, pointed out it might be overly cautious, Bloomberg reports. They want more intelligence on product strategies.
The BMO analysts said they have “a mostly positive view” of the Auth0 deal, but the transaction value “is certainly expensive."
To be sure, Morgan Stanley left its target unchanged at $275 with an equal-weight rating.
“The $6.5 billion acquisition of Auth0 provides Okta a strong footprint amongst developers, but product overlap may raise questions,” Morgan Stanley analysts said in a report obtained by TheStreet.com.
“While fiscal fourth-quarter results came in above consensus, a deceleration to 34% year-on-year CRPO [current remaining performance obligations] bookings growth may be shy of investor expectations,” Morgan Stanley analysts said.