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CyberArk Siphoning From Okta After Mishandled Hack
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CyberArk Siphoning From Okta After Mishandled Hack

What happens if there is a security breach at one of the biggest cybersecurity companies? Its closest peer stands to benefit.

The data breach at Okta (OKTA) earlier this year not only jeopardized the information of 2.5% of the company’s corporate customers, but also managed to tarnish the reputation of the identity and access management company. This unlocks a new door redirecting customers to one of Okta’s biggest business rivals —CyberArk Software, Inc. (NASDAQ: CYBR).

The Lapsus$ Incident

For the unversed, on the evening of March 21, the Lapsus$ ransomware gang revealed that it had gained access to an administrative account of Okta’s identity management platform, jeopardizing the confidential data of 366 of the company’s corporate customers. However, more than the breach, the company’s reaction to it lost the confidence of many existing and potential customers.

The incident of the breach that took place in Okta’s sub-processor Sitel in January, was identified in the same month itself. Necessary actions and follow-up investigations were also undertaken to ensure system security. Nonetheless, Okta customers were not notified of the breach till the ransomware gang declared it themselves. The claims were followed by a disclosure by Okta to its customers which did not include many details. This lack of communication is not sitting well with enterprises.

CyberArk Further Ahead in Customer Radar?

Wells Fargo analyst Andrew Nowinski believes that this poor communication and lack of empathy and ownership, which shook the confidence of customers, will prompt a bake-off (comparison between technologies and picking out the best option) in the market. The analyst thinks that identity access management peer CyberArk stands to benefit the most from this incident.

“While the CyberArk platform likely would not have prevented the breach any better than the Okta technology, we believe the time lapse between when the breach was identified (January) and when the breach was disclosed to customers (March) could sway customers toward CyberArk in bake-offs,” said Nowinski.

The analyst estimates that CyberArk is well-positioned to beat its own expectations of revenue growth of 17% in the fiscal year of 2022, if it can effectively pull the crowd toward itself. Interestingly, this upside seems to have been included in the current valuation of the company already.

Why CyberArk Over Okta?

It should be acknowledged that the breach was not Okta’s fault. Third-party sub-processors like Sitel that support customer service activities of a company tend to have weaker security systems than the client companies themselves. Even CyberArk employs around 12 sub-processors which does not include Sitel.

Besides, Okta was able to quickly detect and tackle the vulnerability. Therefore, it won’t be fair to say that CyberArk would have done any better than Okta in warding off the ransomware.

However, it is the gap between the identification of the intrusion and the disclosure to customers that is the main issue here.

Also, in a bake-off, the fact that the launch of Okta’s PAM (privileged access management) solution is running behind schedule, is also expected to come up. Nowinski expects the solution to hit the market in 2023 or later.

The analyst reiterated a Hold rating while raising the price target to $170 from $150, solely based on the position of advantage that CyberArk has been thrust toward. This is all thanks to the displeasure of Okta customers.

Bottom-Line

All said, CyberArk is anyway benefiting from the increased prioritization of cybersecurity across industries. However, as Nowinski pointed out, there still remains a threat to the company from Okta in the area of PAM. Nonetheless, hopes are currently pinned on how CyberArk’s customer win rate changes in response to Okta’s incident.

Wall Street Weighs in

CyberArk enjoys consensus optimism with a Strong Buy consensus rating based on 15 Buys and two Holds. The CYBR stock prediction sees an upside of 17.26% from pre-Thursday market open price levels, at an average price target of $199.35.

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