Good foundation, but now it's all about the next steps

Okta was founded in 2009 by Todd McKinnon (CEO) and Frederic Kerrest with a vision to fundamentally improve the world of identity and access management (IAM). The company has established itself in a highly competitive market and offers a technically mature and popular solution. But despite these successes, one crucial point remains: Okta is still not profitable 15 years after it was founded.

This leads to the question of whether Todd McKinnon, an engineer with an impressive technical background, is the right man to lead Okta into the next phase of its growth, means profitable growth.

Strategic wise did Todd a very good job with the Auth0 acquisition, and since he paid the purchase price of $6.5B with 100% OKTA shares at nearly peak of OKTA shares price, the timing was very good. Since OKTA was focusing on large companies, with Auth0 OKTA got access to small and med size customers. But a non-profitable company acquires a non-profitable company, makes an existing problem even bigger.

Of course in the quarterly results they highlight RPO (Remaining Performance Obligations) in Q3.25 $3.659B (up 19% Y/Y) and they are ok, but the NRR (Net Retention Rate) is trending down from Q2.23 122% to Q3.25 108% and this I find alarming and gets me back to the main problem: profitability.

So Todd needs to find a better payment-solution (e.g. pay-as-you-go model) and monetize value-added services, (e.g. AI agents also need an IAM).

 One potential way to make Okta profitable and sustainable could be a closer collaboration or even a merger with CrowdStrike (CRWD). Both companies serve different but complementary areas of the security market.

Conclusion: Good basis, but the decisive step is still missing

Okta has a solid foundation: a technically brilliant solution, a strong market position and a recurring revenue model. But to be truly successful, Todd McKinnon needs to take strategic risks and further develop the business model.

It is not enough to have a better solution than the competition. The key is to find a business model that solves a “problem” for customers so elegantly that they are willing to pay for it - and profitably.

CrowdStrike and Okta offer exciting opportunities in this context. A more intensive collaboration or even a merger could strengthen both companies and create a market giant that could have a lasting impact on the security market.

The next step is the most difficult, but also the most important. Todd McKinnon and Okta have the opportunity to become a sustainable and profitable company. It is now a matter of seizing this opportunity.

I focus also on:

-       More equity than debt. Ratio is at 14% (debt/equity). So perfect.

-       ROE of about 20%. Past -0.6%, future 8.3%. Still not good, it is important to reach breakeven to positive earnings asap. According to analyst consensus, you see in SWS section “Future Growth” a note with “No longer forecast to break even” from Dec 04.

Actually it is 39% under fair value (SWS FV $143), with a reasonable underlaying FCF

-       2025: $663m

-       2028: $972m

 Based on the underlaying FCF from SWS I calculated the interest rate of an investment at current stock price. At current value I get 13% annual return. My money works well.

OKTA is a chance to invest in a company, where breakeven to profitability is still ahead.