Contact: Brenon Daly
The unicorn parade on Wall Street continued Friday as security vendor Okta nearly doubled its private market valuation in its debut on the Nasdaq. The subscription-based identity and access management provider initially sold shares at $17 each, but investors bid them to about $24 in midday trading. With the surge, Okta is valued at some $2.4bn. (See our full preview of the offering.)
Okta becomes the third enterprise IT startup to come public so far this year, and it extends the strong performance of these new issues. It also joins the two previous IPOs – MuleSoft and Alteryx – in sporting a rather stretched valuation. Based on a market cap of $2.4bn, Okta is trading at about 15x trailing sales.
Granted, Okta’s sales are growing quickly, having nearly quadrupled in just the past two fiscal years to $160m. Still, the company is commanding quite a premium compared with fellow secure identity specialist CyberArk, which also just happens to be the last information security startup to create more than $1bn of value in its IPO. (To be clear, CyberArk, which went public in 2014, also sells identity-related products in the form of privileged identity management, but doesn’t really compete with Okta.)
Wall Street currently values CyberArk at about 8.2x trailing sales, or just slightly more than half the level that investors are handing to the freshly public Okta. Bulls would argue that Okta merits the premium given that it is growing twice as fast as CyberArk. But others might counter with a question about what that growth is costing each of the companies. Okta lost a mountainous $83m on its way to generating $160m in sales last year. In contrast, CyberArk, which has run in the black for the past four years, netted $28m from its 2016 revenue of $217m.
If nothing else, the valuation discrepancy underscores that growth is still the key metric for investors. Okta’s IPO is simply supply meeting demand, same as it ever was on Wall Street. Indeed, CyberArk has also experienced that. Shares of the company reached an all-time high – nearly 50% higher than current levels, roughly Okta’s current valuation – in 2015, when revenue was increasing north of 50%, compared with the mid-30% level now.
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