Identity access management leader Okta (NASDAQ:OKTA) is set to report second quarter numbers after the bell on Wednesday, Aug. 28, and I’m optimistic on OKTA stock ahead of that print.
My optimism is rooted in four things. First, Okta’s earnings history is stellar. Second, the numbers this quarter look very beatable. Third, peer cloud companies have reported strong numbers over the past month.
Fourth, and most importantly, the secular growth narrative underlying OKTA stock is so robust and wide-reaching that, even if the stock sells off in response to Q2 numbers, that sell-off will be temporary. In the big picture, it will be nothing more than an opportunity buy into a long-term winner at a discount.
As such, I like OKTA stock ahead of earnings. In all likelihood, the company reports strong numbers, and the stock flies higher. In the event that doesn’t happen, I’m perfectly comfortable buying the dip, given the strength of this company’s secular growth narrative. Either way, I see Okta stock as one for the long run.
Stellar Earnings History
Let’s have a look at the Okta Inc stock stellar earnings history. Indeed, the company’s track record is flawless.
Okta’s first public earnings report was back in June 2017. It was a double beat report, topping Street estimates on both revenue and earnings. Ever since, Okta has racked up nine consecutive double-beats. Not surprisingly, OKTA stock has performed very well during this stretch. Since that first earnings report, the shares are up more than 430%.
Coming into tomorrow’s earnings report, history is on the bulls’ side ahead of the Q2 print.
The Numbers Look Beatable
The second big reason to buy OKTA stock ahead of earnings is that the Street numbers look very beatable.
In every quarter since going public, Okta has reported revenue growth of 50% or better. That is nine quarters of 50%-plus revenue growth. The Street is looking for less than 40% revenue growth this quarter. Against the backdrop of those nine straight quarters of 50%-plus revenue growth, a sub-40% revenue growth estimate this quarter seems very beatable.
To be sure, part of this slowdown is because management guided for it in the last earnings report. But, management has a history of under-promising and over-delivering. That seems especially true this time around, with revenue growth estimates slated at multi-quarter lows.
As such, it seems highly likely that — at the very least — Okta tops revenue estimates in its Q2 print.
Peer Results Have Been Strong
The third reason to buy OKTA stock ahead of Wednesday’s earnings is that peer cloud companies have reported strong numbers over the past month, in sum supporting that the secular enterprise cloud transition remains as vigorous as ever.
Specifically, over the past month, cloud companies Salesforce (NYSE:CRM), Splunk (NASDAQ:SPLK), ServiceNow (NYSE:NOW), and Twilio (NASDAQ:TWLO) all reported double-beat-and-raise earnings reports. At the same time, hybrid cloud companies Akamai (NASDAQ:AKAM) and Intuit (NASDAQ:INTU) both reported double-beats in the past month, and both cited cloud strength in their earnings report.
Also of note, cloud infrastructure giants Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) both reported double-beat quarters recently, with cloud strength at the epicenter of both beats.
Net net, the takeaway is that the secular enterprise cloud transition remains as vigorous as ever, despite slowing economic growth around the world. Okta makes its living off this transition. As such, so long as it remains vigorous, Okta’s numbers should remain favorable.
Secular Growth Narrative is Robust
The fourth big reason to buy OKTA stock ahead of earnings is that the secular growth narrative here is so good that any post-earnings sell-off will likely be nothing more than a buying opportunity.
Okta has created an innovative solution at the convergence of the cloud and cybersecurity worlds. Specifically, the company has developed what management calls the Identity Cloud, which is an identity-based cloud security solution which enables customers and employees alike to securely log into multiple applications using just one log-in. This solution is high adaptive, highly secure, and very convenient for enterprises — which are sometimes adopting several new software systems every month.
Because of these advantages, Okta’s Identity Cloud solution has gained significant traction in the cloud security world over the past several years. It will continue to gain traction over the next several years, too. At the same time, the whole cloud security solution market will expand dramatically, driven by more enterprise workloads migrating to the cloud and enterprises spending more money to protect and secure those workloads.
As such, Okta projects as a market share gainer in a secular growth industry for the next several. That implies big revenue growth for a lot longer. Gross margins are north of 70%. Opex rates will fall with scale. Over the next few years, Okta projects as a big time profit grower — and all that profit growth should propel OTKA stock meaningfully higher.
Bottom Line on OKTA Stock
Okta should report strong second quarter numbers after the bell on Wednesday. Those better-than-expected numbers should be good enough to spark a nice post-earnings rally in OKTA stock.
But, even if that doesn’t happen, any post-earnings sell-off in OKTA stock will most likely just be a buying opportunity, since the secular growth narrative here implies that OTKA stock is a long-term winner.
As of this writing, Luke Lango was long OKTA, SPLK, and GOOG.
