Okta Stock Faces Downward Pressure After Second Major Breach

Evercore analysts have expressed concerns about Okta's stock following the company's second significant breach in two years.

Downgraded Rating

On Monday, analyst Peter Levine and his team downgraded Okta's stock to a Tactical Underperform rating. This indicates that the firm anticipates pressure on the stock price in the near term. However, Evercore's long-term rating of In Line, equivalent to Neutral, with a target price of $75, remains unchanged.

Stock Performance

Okta's shares closed down 12% on Friday at $75.57. After markets opened on Monday, they saw a further decline of over 9%.

Breach of Security

The downgraded rating comes in the wake of Okta's announcement last Friday that hackers had gained access to files uploaded as part of support cases by certain customers. This is not the first time Okta has experienced a breach. Early last year, their systems were also compromised by a hacking group who accessed the machine of a third-party contract employee.

Okta's customers, including MGM Resorts and Caesars Entertainment, have recently fallen victim to cyberattacks as well.

Impact on Customers

Recent discussions with multiple partners have revealed that customers are leveraging the MGM and Caesars incidents to negotiate significant price reductions when renewing contracts. There is also evidence of longer sales cycles as customers try to better understand Okta's involvement in these breaches.

Short-Term Pipeline Impact

According to Levine, these events are likely to have a short-term impact on Okta's pipelines and may result in a downward revision of fiscal 2024 estimates. The consensus estimates for fiscal 2025 may also be jeopardized.

Financial Outlook

Okta has projected sales of $2.207 billion to $2.215 billion for fiscal 2024, representing a growth rate of 19% compared to the previous year. Analysts, however, expect sales to increase by nearly 16% to $2.6 billion in 2025.

Conclusion

The recent breach and its consequences have raised concerns among analysts about Okta's stock performance. With customers seeking contract renegotiations and potential downward revisions in estimates, the company faces challenges in the near term.