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Okta vs DocuSign: Which Work-From-Home Stock Still Has Room To Run?
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Okta vs DocuSign: Which Work-From-Home Stock Still Has Room To Run?

Remote working and rapid migration to the cloud since the pandemic have immensely benefited the so-called “work-from-home” stocks like Zoom Video, DocuSign, Okta, Zscaler and CrowdStrike. After touching all-time highs, some of the work-from-home stocks took a hit on the news of COVID-19 vaccine success.  

Some analysts believe that these companies will continue to benefit from secular trends like increased cloud adoption. That said, the sales growth rates are expected to moderate. Bearing in mind the current uncertainty due to rising COVID-19 cases, we will use TipRanks’ Stock Comparison tool to stack up Okta against DocuSign and see which stock the Street thinks has further upside potential.

Okta (OKTA)

Okta is a cloud-based identity management platform that enables companies to manage and verify users’ identities before granting them the right level of access to workplace systems and information.

The demand for the company’s identity platform is helping in winning new customers and driving increased sales from the existing customers. In 3Q FY21, Okta’s revenue grew 42% to $217.4 million, and the company flipped to an adjusted EPS of $0.04 from an adjusted loss per share of $0.03.

The company now boasts 1,780 customers (34% year-over-year rise) with annual contract value (ACV) of $100,000. What’s more, customers with an ACV greater than $500,000 grew over 50% to 320 in 3Q. Large enterprise customers now make up 80% of Okta’s annual ACV.  

Canaccord Genuity analyst Michael Walkley believes that Okta’s strong results demonstrated its ability to win larger enterprise customers as reflected by another quarter of triple-digit net additions of customers with ACV of over $100,000.

Walkley increased his price target to $250 from $218 and stated, “Okta is the category leader in the Access Management security software market that is benefiting from the pandemic driving increases in remote workforces and demand for Identity Access Management (IAM) solutions. Longer term, work-from-home should settle at higher levels, and along with accelerations in digital transformation and cloud computing, cybersecurity demand will continue to increase accordingly.”

Though the analyst is impressed with Okta’s fundamentals, execution and market position, he continues to be on the sidelines due to valuation concerns. Reiterating a Hold rating on Okta, Walkley concluded, “With the stock trading over 30x EV/Sales on C2021 estimates, we believe patient investors might have a better opportunity at a more favorable risk/reward level.” (See OKTA stock analysis on TipRanks)

The rest of the Street has a cautiously optimistic Moderate Buy analyst consensus, backed by 9 Buys and 5 Holds. Given the stellar year-to-date rise of 135.3%, the average price target of $266 implies a possible downside of 2% from current levels.

Looking ahead, Okta predicts revenue growth of 40% in FY21 and expects to cross the milestone of $1 billion in FY22. Okta has now teamed up with Amazon Web Services to bring the Okta Identity Cloud to AWS Marketplace, thus gaining access to an extensive potential customer base while further integrating its identity solutions with AWS.  

DocuSign (DOCU)

DocuSign, with a market share of 71% (as per Datanyze), is a dominant player in the e-signature space, with closest rivals like SignNow, RightSignature and Adobe Sign each holding less than 6% of the market share.

However, DocuSign has more to offer than its flagship e-signature product, which is a part of its broader Agreement Cloud offering. Agreement Cloud includes a suite of products like the DocuSign CLM (contract life management), which helps in automating the entire agreement lifecycle from end-to-end.

Customers are realizing the need for e-signature and DocuSign’s other cloud-based solutions for managing agreements as they are embracing digital transformation in the current work-from-home environment. Earlier this month, the company reported a 53% increase in its 3Q FY21 revenue to $383 million on robust subscriptions. Adjusted EPS doubled to $0.22.

Furthermore, the number of customers with greater than $300,000 in annual contract value in billings increased 35% year-over-year to 542. (See DOCU stock analysis on TipRanks)

After gaining a strong position in the domestic market, the company is now eyeing further international expansion. DocuSign’s international revenue grew 77% in 3Q and accounted for 20% of total revenue. Overall, the company gained nearly 73,000 new customers in the quarter, bringing its total customer base to 822,000. The company’s guidance now indicates over 46% revenue growth in FY21.   

Following the 3Q results, Oppenheimer analyst Koji Ikeda reiterated a Buy rating with a $300 price target, as he believes that the company’s performance cemented its position as a disruptor in the digital future of work.

“We believe the F3Q results are a salient proof point that not only is DocuSign being viewed as mission critical to keep business operations flowing during the pandemic; but more importantly, as a strategic technology for the new digital future of work, which should drive strong installed-base monetization trends and new logo acquisition for the foreseeable future,” summarized Ikeda.

Overall, DocuSign scores the Street’s Strong Buy analyst consensus based on 10 Buys versus 3 Holds. With shares rising by a staggering 233.3% year-to-date, the average price target of $276.46 indicates upside potential of 12% over the coming year.    

Bottom line

Okta’s future looks very promising due to the robust demand for its identity-management solutions, while DocuSign is well-positioned to grow with its Agreement Cloud suite and dominance in the e-signature market. Right now, both stocks are trading at lofty valuations. However, DocuSign appears to be a better pick as the Street feels it still has further upside ahead.   

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

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