Okta (NASDAQ:OKTA) will report its fourth-quarter and fiscal 2019 earnings on Thursday after the bell. Wall Street expects the company to narrow its losses and boost revenues as customers continue to adopt its solutions. Moreover, if the previous four quarters serve as an indication, the numbers could easily come in ahead of analyst estimates.
However, considering the recent run-up in Okta stock, and the continuing losses, investors should consider staying on the sidelines.
Okta Stock Earnings: Wall Street Predicts Higher Revenues, Smaller Losses
Analysts expect the San Francisco-based cloud company to report a quarterly loss of 8 cents per share on revenues of $107.95 million. In the same quarter the previous year, Okta lost 10 cents per share and brought in $77.75 million in revenue.
For fiscal 2019, Wall Street predicts the company will report $391.75 million in revenue and a loss of 36 cents per share. In fiscal 2018, the company lost 77 cents per share on $259.99 million in revenue.
Okta thrives on the “identity cloud,” a product that will be on Wall Street’s radar during earnings.
This cloud product focuses on an individual identity within the cloud. As new apps come online, Okta can easily bring individuals into these complex ecosystems without compromising security.
Its best-known offering allows for a single sign-on to multiple platforms. In a world where people have to remember dozens of passwords, one can easily see the benefits.
Okta Stock Continues to Move Higher
Introduced at $17 per share in April 2017, Okta stock now trades at about $79 per share, a 364% increase in less than two years. This move higher has made it an expensive stock. OKTA currently trades at about 23 times sales and almost 36 times its book value. Moreover, Wall Street does not expect it to turn a profit at any time in the foreseeable future.
The move higher has worried some analysts. KeyBank (NYSE:KEY) downgraded Okta stock from “overweight” to “sector weight.” They cited the recent increase in the stock price as the reason for the downgrade. Guggenheim also removed OKTA from its Best Ideas list, less than three months after adding it in December.
Is Okta the Roku of the Identity Cloud?
Despite its valuation, an earnings beat could boost the stock price further. OKTA maintains a consistent track record of beating earnings estimates. I do not expect that to change following the next report. I also like the competitive moat that benefits Okta stock. Many also prefer Okta for its ease of use.
Despite a modest $8.8 billion market cap, I think Okta could benefit as the neutral identity cloud player. They appear to compare well to Roku (NASDAQ:ROKU), who has become the unbiased entity in the streaming video space. Granted, a company such as Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) or Microsoft (NASDAQ:MSFT) could develop a competing product. However, peers would likely distrust the competitive advantage that would give to a cloud giant. Settling on Okta’s products provides the industry with the desired neutrality.
Even with that benefit, I share the concerns of the KeyBank and Guggenheim analysts on Okta stock. I see little besides the current upward momentum that could take OKTA higher after earnings. Given how far Okta has moved ahead of its growth rate, I would avoid this equity for now.
Bottom Line on Okta Stock
Although the company will more than likely beat earnings and revenue estimates, investors should stay away from Okta stock as it reports its numbers. Despite its $8.8 billion market cap, OKTA has developed an identity cloud product that has won praise from users and developers. It also stands a good chance of surviving a challenge should a mega-cap cloud company try to offer a competing product.
Unfortunately for new buyers, the market has priced all of these benefits into the stock. Now, with the stock trading at over 23 times sales, the stock could easily correct.
It remains unclear which direction OKTA will move after the report. I believe Okta stock will move higher long-term. Still, the short-term outlook is a different story, and investors should probably wait for a substantial pullback before buying into this equity.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.