Tech Unicorn Okta, Inc. Looks Strong Ahead Of IPO
Tech Unicorn Okta is expected to IPO on Friday (4/7) and expected to be the fourth unicorn to make its debut this year.
The San Francisco-based company provides cloud-based security services to businesses.
Okta has an experienced management team, fast revenue growth, and increasing margins.
At its current valuation, we recommend an investment.
Okta (Private:OKTA) is expected to IPO on Friday (4/7), offering 11.0 million shares at an expected price range of $13 to $15. The company initially filed for its IPO with the SEC on March 13, 2017. If the underwriters price shares at the midpoint of the price range, OKTA will have a market cap value of $1.29B and trade at a price/sales multiple of 8.06x.
The company was valued at $1.2B at its most recent round of funding in September 2015 and has raised an aggregate of $230M in VC funding. Notable investors include: Andreessen Horowitz, Greylock Partners, and Sequoia Capital.
Underwriters include: Allen & Co., Goldman Sachs, J.P. Morgan Securities, Canaccord Genuity, JMP Securities, and Pacific Crest Securities.
The IPO market has had a solid start to 2017, with 25 companies going public and raising an aggregate of $10B. On average, stocks are up 10% with technology companies being up an average of 24.1% from IPO price (as of 3/29). This strong performance shows no signs of slowing down. Okta is expected to be the fourth unicorn to make its debut this year, following Snap (NYSE:SNAP), MuleSoft (NYSE:MULE), and Presidio (Pending:PSDO). Each is a deal we covered in detail previously. We expect similarly strong performance from Okta.
We previewed the Okta deal on our IPO Insights Platform.
Okta Inc. provides cloud-based security services to medium and large enterprises. The company's platform, Okta Identity Cloud, enables businesses to control employee access to various applications, devices, and data in a simple, and easy to use format as well as manage employee identities.
The main objective of the platform is to simplify employee access to applications, while maintaining strong security. Its product offerings include: Universal Directory, Single-Sign On, Lifecycle Management, Multi-factor Authentication, and Mobility Management.
As of its IPO, Okta had over 3,100 clients and over two million people using its services daily. Its product offerings were rated highly, and Okta was the only company to be named a leader in Identity Access as a Service (IDaaS) by Gartner three years in a row.
Notable customers include: Workday, ServiceNow, NetSuite, Microsoft, Google Cloud, Box, Amazon Web Services, 20th Century Fox, Adobe, Engie, Flex, Github, LinkedIn, MassMutual, MGM Resorts, Pitney Bowes and Twilio.
Okta generates its revenue primarily through subscription fees that have a weighted-average duration of 2.4 years. The fees cover use of the service, technical support, and management of the platform. Invoices are billed annually in advance.
The company has grown revenue significantly. Revenue generated was $41.0M, $85.9M, and $160.3M for FY 2015, 2016, and 2017, respectively. This represents year-over-year growth of 109.5% for 2015 to 2016 and 86.6% for 2016 to 2017. Gross profit increased from 54% in 2015, to 58.06% in 2016 to 65% in 2017. The company has not yet generated profits and generated a net loss: $59.1M, $76.3M, $83.5M, in 2015, 2016, and 2017.
Okta competes in a highly competitive environment; however, it is viewed as a leading player in the Identity Access as a Service. Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM), and Salesforce (NYSE:CRM) offer similar products to Okta's Identity Cloud and Okta also competes against smaller, private players.
Assuming Okta prices at the midpoint of its price range, $14, it would command a market cap value of $1.29B and trade at a price/sales multiple of 8.06x. This is above the industry average price/sales ratio of 6.36x, but seems justified given the significantly higher growth rate.
Executive Management Highlights
Co-founder, Director, and CEO Todd McKinnon has served in his positions since the company's inception in 2009. He was previously the Senior Vice President of Engineering at Okta's competitor, Salesforce. McKinnon holds a Master of Science in computer science from California Polytechnic State University, San Luis Obispo and a Bachelor of Science in management and information systems from Brigham Young University.
Co-founder, Director, and COO Frederic Kerrest also worked at Salesforce, before leaving to found Okta. Kerrest holds a Master's in Business Administration from the MIT Sloan School of Management and a Bachelor of Science in computer science from Stanford University.
Conclusion: Consider Buying In
Okta has growing revenues, increasing gross margins, and building a strong and loyal customer base.
Despite high competition in the industry, Okta has established itself as a leader in the market.
At its current valuation, we are bullish on Okta and recommend investors consider an investment in this IPO.
Don Dion's IPO Insights provides up-to-date information and analysis on the major IPOs each week, along with additional opportunities to invest and short these stocks at their quiet period and lockup period expirations, respectively. Consider following us at the link above. We will continue our PRO offerings on Seeking Alpha alongside our more exclusive research.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in OKTA over the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.