Okta Finds Its High-Price Match

But Okta has some powerful currency to work with. Its stock had jumped 84% in value over the 12 months before Wednesday’s announcement, which gave Okta one of the highest multiples in the cloud sector at above 30 times forward sales. Okta Chief Executive Todd McKinnon said the company actually paid a lower multiple for Auth0 relative to its own stock. Auth0 is projected to hit a level of more than $200 million in annualized recurring revenue this year. Sterling Auty of JPMorgan estimates that Auth0 will double Okta’s business in the segment for companies that need identity-management tools for their own customers.

Okta’s stock was down around 5% Thursday—an improvement from the 12% after-hours selloff the previous day following the news. Okta’s quarterly results and its forecast for the current fiscal year came in ahead of Wall Street’s estimates, though the projection for revenue to grow by 29% to 30% represented a notable deceleration from the 43% growth for the fiscal year that just ended. Canaccord analyst Mike Walkley called the guidance conservative and upgraded the stock to a “buy” rating on Thursday.

Coming just three months after Salesforce.com’s $27.7 billion outlay for Slack Technologies, Okta’s move should serve as yet another reminder for investors that deals in the cloud will be expensive. Still, no other software acquisition above the $5 billion mark over the past five years has been undertaken by a company of Okta’s size, according to data from Dealogic. A former Salesforce executive himself, Mr. McKinnon knows well the art of the software deal. Now will be his chance to show he can pull off a big one.