2017-06-15 / Business News

It has risks, of course, but cloud security company a good investment


People always ask me why I continue to write Money & Investing articles now that I am in the jewelry business. I guess there are two main reasons. First, it allows me to stay connected to my previous “life” in finance and feel that the six figures I spend on my financial education is still paying dividends. And second, writing this article forces me to keep abreast on the ever changing and evolving investing landscape.

Case in point is when I was paging through some financial websites looking for inspiration for this article when I saw a headline about Okta shares rising on strong sales. Now I don’t know about you, but I never heard of a company named Okta and was very surprised to see that this was a $2 billion company with quickly growing revenues. So what is Okta and why should this company matter to you?

To get an understanding of what Okta does, it helps to understand where the name of the company came from. Okta is a meteorological term that describes the amount of cloud cover over a given area. Okta’s business it centered around the cloud, but not those in the sky. Okta provides security for companies that operate online in the technology “cloud.”

The reason investors are so excited about Okta is due to the changing nature of how businesses operate. Historically, employees would do their jobs on their own personal computers on an internal network or on a mainframe computer within the office. Today, in an increasingly mobile world where employees work outside of the office or with colleagues in another country, many companies operate online where staff accesses their work product and applications online.

However, this shift in business behavior opens companies to increased security risks. This is where Okta comes in. The company allows employees to easily access the programs they need to do their work while keeping those applications secure. This is a huge and growing business currently worth over $18 billion as estimated by the company.

Currently, Okta has trailing revenues of only around $150 million so clearly there is lots of room for it to grow. That is why investors granted the company “unicorn” status when it rolled out is IPO earlier this year with over a billion dollar market capitalization.

Which brings us to this past week when the company announced its first earnings since going public. Revenues jumped 67 percent from the comparable period the year before and surpassed estimates. In addition, the company guided higher on anticipated revenues and income for the next quarter.

However, despite strong sales growth there are still significant risk factors for the company. First, Okta continues to lose money due to high spending in marketing, new technologies and R&D costs. Second, there are a number of larger tech companies that could devote significant resources to dominate this area should they choose such as Microsoft or Salesforce.com. Third, a security breach could generate poor PR which could harm the company’s currently stellar reputation.

And from an investing perspective, the company is not priced cheap. Given it is losing money, it has a negative P/E ratio and even its Price/Sales ratio is a staggering 11. In order to continue growing, it must maintain its high growth rate and gradually move toward producing income.

But despite these factors, I think Okta deserves a look from investors. It has positioned itself well in an explosively growing area where it has a first movers advantage, an easy to use product, and a great reputation. If it can keep executing, this may be a company that everyone has heard of in the very near future. ¦

— Eric Bretan, the co- owner of Rick’s Estate & Jewelry Buyers in Punta Gorda, was a senior derivatives marketer and investment banker for more than 15 years at several global banks.

Return to top