OKTA jumps 15% following earnings, gives up gains

Okta (OKTA) reported a strong set of Q3 results, beating both earnings and revenue expectations. Adjusted EPS came in at $0.67, significantly exceeding the consensus estimate of $0.58, while revenue grew 14% year-over-year to $665 million, ahead of the expected $649.7 million. Subscription revenue, which constitutes the bulk of Okta’s revenue, also increased 14% to $651 million, showcasing consistent demand for its identity and access management solutions.

Key metrics such as remaining performance obligations (RPO) highlighted the company’s growth trajectory. RPO rose 19% year-over-year to $3.7 billion, indicating strong visibility into future revenue streams as this figure reflects contracted revenues over an average of 2.5 years. This robust RPO growth was supported by strength in deals with large customers and expanding adoption of Okta’s newer product offerings.

Okta's operational efficiency continued to improve, with adjusted operating margin increasing to 21%, up from 15% in the prior year. Adjusted operating income surged by 62% year-over-year to $138 million, while free cash flow grew 2.7% to $154 million, surpassing Street expectations. These metrics demonstrate the company’s ability to balance growth with profitability, even as it navigates competitive market conditions.

Guidance for Q4 also came in stronger than expected, providing further optimism. Okta projects revenue between $667 million and $669 million, exceeding the consensus estimate of $650.6 million. Adjusted EPS for the quarter is forecasted at $0.73-$0.74, well above the expected $0.67. Additionally, Okta raised its full-year FY25 guidance, increasing revenue expectations to $2.595-$2.597 billion and adjusted EPS to $2.75-$2.76, reflecting its confidence in continued momentum.

Analysts were impressed with Okta’s execution, particularly in its channel partnerships, public sector opportunities, and performance with large enterprise customers. There was also a notable emphasis on Okta’s ability to expand its wallet share within its existing customer base, a key driver for sustained growth. New products, while still in the early stages, are beginning to contribute meaningfully, further diversifying the company’s revenue base.

However, Okta’s customer acquisition metrics were softer, with total customer growth of 3% and large customer growth of 8%. Despite this, analysts believe the strong revenue performance indicates that Okta is effectively selling new products to its existing customer base and capturing additional wallet share. These dynamics provide reassurance as the company transitions past the "COVID cohort" headwinds and focuses on new market opportunities.

While management’s preliminary FY26 guidance of 7% revenue growth was below some expectations, analysts view it as a conservative starting point, particularly given Okta's historical tendency to exceed guidance. Several analysts highlighted that stronger-than-expected performance in Q4 and successful new product adoption could enable Okta to surpass its FY26 targets.

The market reacted positively to the earnings results and guidance, with Okta shares surging over 15% in premarket trading. The strong print and optimistic outlook underscore Okta’s continued execution and ability to deliver on its long-term growth strategy, positioning it as a leader in the cybersecurity and identity management space. Investors remain optimistic about its ability to drive growth through expanding product adoption and strong operational discipline. However, the stock has been giving up those gains today. This could signal a near-term top for the stock.