Okta Inc. buy Subdi

Bert Hochfeld:
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Okta is one of those names whose share price has essentially done nothing this year while its reported revenues have surged, and even after adjusting for the shares issued in connection with the merger, the company will probably grow its revenues per share by something in the range of 40%+. So, based solely on its EV/S ratio, the shares are noticeably cheaper now than they were 10 months ago. It appears as well, that Okta's organic growth rate, including the revenue synergies being developed in conjunction with the Auth0 offering, are higher now than the assumption had been a year ago. With Auth0, Okta has now become the visible leader in the customer facing identity management space, confounding fears that its core business of providing identity solutions to employees was showing flagging growth.

The company has already announced a new set of deliverables and put forth an extremely aggressive product road map that has allowed it to offer new SKUs to existing customers, and that has already started to show up in a rising DBE ratio. The company’s backlog on an organic basis has risen in the low 40% range and its rate of organic billing growth has risen to 47%. The company’s DBE grew to 124% as the Auth0 acquisition provided additional functionality for existing customers to use.

It is a little early to attempt to calculate the net impact of the merger and the revenue synergies on cost ratios and margins. Obviously, the company has taken a deferred revenue haircut. Even after adjusting for the recognition of stock-based comp expense as options vested with a change of control provision for Auth0 employees, operating expenses are running at rates that have yet to be rationalized. That said, the company’s OpEx came in below expectations because cost efficiencies have come sooner and been greater than the company had projected.

Like most other companies on this list, the guidance here has been self-described as “prudent.” Consider what the CFO actually said, before he provided a specific forecast, “We had great Q2 results and maintain conviction in the secular market tailwinds. We continue to be prudent and thoughtful about the rate and pace of near-term integration and synergies with Auth0. This is reflected in our guidance."

A few weeks later, at the latest Okta analyst event, the operating management was talking about higher close rates and the resonance of the product road map with users. To my mind, Okta really ticks all the boxes I want ticked in terms of being a decent investment in the current economic environment. Compressed valuation, accelerating growth in revenues, bookings and backlog, significant cost synergies, and stronger close rates are a package that I have found hard to resist as an investor. The EV/S ratio of 25x may seem high, but again with organic growth rates rising, that perception is no longer valid. And while the free cash flow projection for this year is modest, the company should rapidly return to achieving free cash flow margins in the mid-20% range. It has been a long time, if ever, since it was possible to maintain that Okta shares were cheap. They have, I believe, become so over the course of this year, and are well worth a deep dive by readers.
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https://seekingalpha.com/article/4462294-high-growth-stocks-in-land-of-inflation-and-higher-interest-rates-shopping-list