Okta to buy security startup Auth0 for $6.5 billion

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Okta, a maker of software for account logins, is buying Auth0, a younger rival, for $6.5 billion. The transaction, announced alongside Okta’s end-of-fiscal-year earnings report on Wednesday, is an all-stock deal.

The stock market is running hot right now, especially for tech company valuations. Okta’s purchase takes advantage of its own surging stock price. Okta shares have doubled in price to $240 since the start of 2020, and since the company’s initial public offering in 2017, its share price has surged more than 900%.

Okta and Auth0 both create software tools that make it easier for businesses to produce digital logins for customers and workers. Okta is a more established company, having built its name in the IT world since its founding in 2009. Auth0, an upstart created in 2013, has been recently gaining traction, especially because of its approach in catering to software developers who embed its tools directly in products.

By buying Auth0, Okta is taking a competitor off the table. “There’s more to be gained together than apart,” says Todd McKinnon, Okta’s chief executive and cofounder, on a call with Fortune. “You get the appeal to the executives that Okta is really good at, and the appeal to developers” of software that is Auth0’s specialty, he says.

McKinnon, who formerly worked as a senior executive at Salesforce, says the two companies would benefit from combining sales teams and pooling cybersecurity threat data. “It’s just a killer combination,” he says.

In addition to announcing the deal, Okta said it had $835 million in revenue for the year ended Jan. 31, up 43% year over year. The company said its net loss was $266 million in its most recent fiscal year versus $209 million for the year prior. Okta shares fell 11% in after-hours trading on Wednesday, after a 9% decline earlier in the day, as the company’s first-quarter forecasted outlook fell short of Wall Street expectations.

Okta said it planned to maintain Auth0 as an independent business unit within the company. When asked how the two erstwhile rivals will become partners, Eugenio Pace, the chief executive and cofounder of Auth0 and a Microsoft alumnus, said “the biggest competitor, the true enemy here, it’s not each of us. It’s the bad actors—the 2 billion suspicious logins we prevent from happening every month.”

McKinnon agreed, noting that the widespread Russian hacking campaign centering on tech firm SolarWinds has heightened the importance of security. The SolarWinds incident has “further put the nail in the coffin that ‘on premise’”—meaning enterprise tech hosted onsite at company offices versus in the cloud—“is more secure.”