3 Software Stocks You’ll Wish You Bought Today, Five Years From Now (OKTA)

In the cloud, your identity is everything

Brian Withers (OKTA): In March, Okta announced it was acquiring Auth0, a developer-centric identity management platform, for $6.5 billion. In May, the deal officially closed and Auth0’s CEO, Eugenio Pace, who will continue to lead his organization participated in Okta’s recent investor day presentation. He chatted with CEO Todd McKinnon about the importance of identity in the cloud era.

Well, if anything, 2020 has shown us that anything is digital, everything. Education, our health care, our entertainment, everything, it's technology surrounding us. And there's one thing that they have in common is that they all need to know who we are. And so the opportunity is massive.

He’s right. Okta has barely tapped into its addressable market with 2% penetration into its workforce identity market of $35 billion and 1% into its customer identity addressable opportunity of $30 billion. On top of that, McKinnon shared that it now has products to reach into the privileged access management and identity governance and management markets, expanding its total addressable market another $15 billion. Add all that up and Okta's total addressable market is now a massive $80 billion.

In addition to its huge market, this identity management specialist is growing at a torrid pace. In the most recent quarter, topline revenue grew at a solid 41% year-over-year pace with remaining performance obligations (the total dollar value of contracts not yet fulfilled) grew even faster at 49%. Customers spending more than $100,000 in annual contract value (ACV) grew 33% year-over-year, but larger customers grew even faster for the year. Customers spending more than $500,000 and $1 million annually, both grew more than 50% for the full year.

Note: Q4 2021 ended January 31, 2021. Data source: Company earnings reports and earnings calls.

But even with all of this positive news, the stock is down more than 20% from its high in February. With cloud software becoming the norm for businesses, Okta’s identity management platform tools will become a “must-have” for large company information technology teams. This platform-as-a-service company announces its Q1 results next week, but regardless of short-term stock swings after earnings, savvy investors would do well to take a bite of Okta’s stock today. In five years, your future self will thank you.