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The Ratings Game: Okta stock surges more than 25% as analysts approve of company’s profit heading

Okta Inc. shares surged by more than a quarter in value Thursday after analysts praised the identity software company for heading in the right direction after it promised a profitable fiscal 2024 following a turbulent year.

Okta
OKTA,
+24.57%

shares surged more than 26% to $67.27 in Thursday trading, dragging the stock price up to only a 70% loss on the year. The company’s report came as a relief following a year where it had to not only overcome salesforce difficulties but a hack nicknamed “Oktapus.”

Late Wednesday, the company not only reported a strong quarter, but forecasted profitability on an adjusted basis for the fourth quarter and for fiscal 2024 as it better focuses its salesforce and the one it inherited from its $6.5 billion acquisition of identity-platform Auth0 (pronounced “Auth Zero”) that closed in May on what products to sell to customers. Okta primarily makes software that helps authorized employees access applications on their corporate networks

Before the call with analysts, Okta Chief Executive and co-founder Todd McKinnon told MarketWatch that he’d announce a 2024 forecast promising a profitable year.

“We’re thinking a pretty conservative assumption that the macro is going to get worse before it gets better, so that’s definitely factored into the guide,” McKinnon told MarketWatch.

On Thursday, Jefferies analyst Joseph Gallo, who has a buy rating and a $80 price target on the stock, called the report a “Ray of Sunshine In This Gloomy Earnings Season.”

“We don’t discount the work ahead, but Okta has a clearer vision and these results should alleviate competition fears,” Gallo said.

In a note titled, “Nicely Clearing Low Hurdles & Finally Cranking Up Profit Engine, with Some FY24E Surprises,” Citi Research analyst Fatima Boolani said she was sticking with her neutral rating on the stock, which “likely enjoys a relief rally on better/cleaner results and a perceived ‘kitchen-sinked’ guide.”

By a guide, Boolani was referring to the lack of any fiscal 2026 targets although she called the 2024 outlook “surprising.” The Citi analyst also said Okta made good on reining in costs and hiring, which drove the “dramatic” swing to profitability.

Of the 33 analysts surveyed by FactSet, 20 have buy-grade ratings, 11 have hold ratings, and two have sell ratings. Of those, 10 lowered their price targets, while six hiked theirs, resulting in an average target price of $77.04, compared with a previous $77.79, according to FactSet data.

In November, cloud software stocks got trashed but rebounded a bit toward the end of the month. While the S&P 500
SPX,
+0.08%

rose 5.4% and the Nasdaq
COMP,
+0.31%

had gained 4.4% in November, the iShares Expanded Tech-Software Sector ETF
IGV,
+1.21%

rose 1.6%, the Global X Cloud Computing ETF
CLOU,
+2.32%

ticked up 0.8%, the First Trust Cloud Computing ETF
SKYY,
+2.07%

fell 2%, and the WisdomTree Cloud Computing Fund
WCLD,
+3.12%

dropped 6.9%.

For the year, the S&P 500 is down 15%, the Nasdaq is down 27%, the IGV is down 31%, the CLOU is off 36%, the SKYY has fallen 39%, and the WCLD has plummeted 49%.

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