Okta Shares Plunge after $6.5 Billion Deal to Acquire its Rival Auth0, CEO Defends the Move

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Okta CEO Todd McKinnon
Okta CEO Todd McKinnon

Todd McKinnon CEO of Okta (NASDAQ: OKTA) — an IT service Management Company has defended his company’s decision of acquiring its rival company Auth0. McKinnon argued the Auth0 deal will be a complementary asset to Okta’s identity.

Since acquiring the rival company — Okta shares slumped 10%. The company bought Auth0 for a $6.5 billion all-stock transaction after Wednesday’s close. Representing over a fifth of Okta’s 28 billion market capitalization

“This company is on a path to go public and, as you know, public markets value public companies a certain way,” McKinnon told CNBC’s Jim Cramer.

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“If you look at how we’re valuing it, it’s growth accretive to us,” McKinnon added. “We actually paid a multiple on revenue that’s slightly below ours, but in the same ballpark.”
Auth0 is a Bellevue, Washington-based identity management platform which targets app programmers.

The company is a fierce competitor to Okta which specializes in cyber-security and user authentication like password authorizations and online network access. It will however operate independently with Okta once the acquirement transaction is settled.

Okta and Auth0 are different, says McKinnon

When he was asked about the reason for acquiring a competitor identity vendor — Okta’s CEO said his company is an owner of offerings — the deal will better serve Okta in managing access and customer identity. Additionally, McKinnon said the workforce identity market  valued at $25 billion accounts for 25% of the Okta’s revenue.

McKinnon argued Okta is pre-built, pre-configured solutions-focused. Meanwhile, Auth0 is purpose-built app developers-focused.

Auth0 is “a product that’s much more flexible and extensible and does exactly down to the bit and bite what the developer needs to do. And that’s why the two solutions together are so compelling,” McKinnon said. “They give customers great choice, flexibility, great value and really solidify that $25 billion [total addressable market].”

Okta’s shares plummeted 4.56% to $215.96 Friday. Its fourth-quarter revenue increased by 40% in 12 months period to reach $234.7 million. Meanwhile, the net loss had hit $75.8 million compared to a $50.5 million loss in the year-ago quarter.

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