Okta’s Core Business Is Strong but Auth0 Is Alarming; Cutting FVE to $71, Shares Fairly Valued

We are lowering our fair value estimate for Okta to $71 from $193 while also downgrading the firm’s economic moat rating to none, from narrow, while maintaining our positive economic moat trend. Both the fair value cut and the moat rating downgrade stem from our concerns that the firm’s acquisition of Auth0 is proving to be value-destructive, with Okta facing substantial labor-related attrition and salesforce integration challenges. With heightened execution risks associated with its integration of Auth0, we are also raising our uncertainty rating for Okta to Very High, from High. Along the same lines, we are downgrading our capital allocation rating for the firm to Standard, from Exemplary.