2 Reasons This Cybersecurity Stock Could Crush the Market

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Historically, enterprises have secured their digital resources by building firewalls around the corporate perimeter. All applications and infrastructure were maintained on site, and all employees on the corporate network were trusted by default.

However, this approach no longer works. Many enterprises have moved resources to the public cloud, an environment that exists beyond their control. And the pandemic has accelerated the adoption of remote work, meaning many employees no longer access resources from within the corporate perimeter.

To address these changes, a new security framework has emerged: zero trust. In this model, no user or device is trusted by default. Instead, each user must be continuously validated to access applications and data. Notably, companies like Okta (NASDAQ:OKTA) play a critical role in making this possible. Here are two reasons this stock could crush the market in the coming years.

Image source: Getty Images.

1. The acquisition of Auth0

Okta specializes in identity and access management (IAM). Its platform allows clients to control access to corporate resources based on context like user device, network, and location. Moreover, the Okta Identity Cloud addresses both workforce and customer identity use cases, securely connecting the right people to the right services.

In May, Okta acquired Auth0 in a stock transaction valued at $6.5 billion. This move makes sense for two reasons: First, by bringing Auth0 in house, Okta bolsters its business while eliminating one of its main competitors. Second, these companies take complementary approaches to IAM, with Okta targeting enterprises and Auth0 targeting developers.

Specifically, Okta’s strength lies in its network of over 7,000 pre-built integrations. These provide clients with ready-made access to applications like Microsoft 365, cloud infrastructure like Amazon Web Services, and cybersecurity platforms like CrowdStrike.

By comparison, Auth0’s strength lies in its developer-centric software tools. Specifically, its platform allows clients to easily embed identity into custom applications, which is useful when building customer-facing experiences.

In other words, Okta’s acquisition of Auth0 is particularly beneficial in the customer identity and access management (CIAM) space, a market that management values at $30 billion. Moreover, Okta believes this acquisition will accelerate its revenue growth, creating synergies that allow the company to more effectively address the IAM market as a whole.

Image source: Getty Images.

2. New products for workforce identity

In November 2020, Gartner published a report forecasting that at least one IAM vendor would introduce identity governance and administration (IGA), and privileged access management (PAM) products by 2024. In April 2021, Okta became that vendor.

During the Oktane21 conference, management unveiled two new products: First, Okta Privileged Access is a PAM solution. This extends Okta’s identity framework to superuser accounts such as system administrators. If hackers compromised these privileged credentials, they could access virtually any corporate resource. To mitigate this risk, Okta’s PAM solution limits superuser permissions, providing access only when necessary.

Second, Okta Identity Governance is an IGA solution. This product uses Okta’s identity framework to drive automation and compliance. For instance, new employees can be automatically provisioned with the access they need to do their job, and if their employment status changes (due to a leave of absence, for example), permissions can be automatically suspended. This helps enterprises operate more efficiently, reducing the burden on IT teams.

Okta’s unification of IAM, PAM, and IGA is significant for two reasons: First, it reinforces the company’s advantage over rivals like Microsoft and Ping Identity, as neither of these companies offer PAM or IGA products. Second, it expands Okta’s total addressable market in workforce IAM to $50 billion.

The bottom line

Collectively, these moves make Okta’s future look bright. Not only do they expand the company’s addressable market to $80 billion — 88 times its sales over the past 12 months — but they also reinforce its competitive edge. Moreover, they allow Okta to capitalize on the growing need for zero trust security. That’s why I think this stock will beat the market over the next five years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.