Okta's Q1 FY2026 Results: A Crossroads of Profitability and Prudent Growth

As okta prepares to release its first-quarter fiscal year 2026 results on May 27, investors will scrutinize whether the identity and security solutions provider can sustain its recent shift toward profitability while navigating a challenging macroeconomic environment. The upcoming earnings report will serve as a critical test of Okta’s ability to balance growth with margin discipline, particularly as it faces slowing revenue momentum and heightened competition in the cybersecurity space.

A Foundation of Resilience: Recent Financial Strengths

Okta’s fourth-quarter fiscal 2025 results, released in February, underscored a notable evolution in its financial profile. Revenue rose 13% year-over-year to $682 million, driven by strong adoption of its subscription-based identity management services. More importantly, the company achieved a positive GAAP operating income of $8 million, marking a dramatic turnaround from a $83 million GAAP operating loss in the same quarter a year earlier. Non-GAAP operating margins expanded to 25% of revenue, reflecting improved cost management and pricing discipline (see Figure 1 for Okta’s margin trajectory).

The star of Okta’s recent performance is its remaining performance obligations (RPO). Total RPO surged 25% year-over-year to $4.215 billion, while current RPO (cRPO)—the portion expected to convert into revenue within the next 12 months—reached $2.248 billion, up 15%. These metrics suggest robust near-term revenue visibility and customer commitment, critical as the company navigates a decelerating top-line growth rate.

Cautious Guidance Reflects a Strategic Shift

Okta’s forward guidance for fiscal 2026, however, signals a deliberate prioritization of profitability over aggressive growth. The company projects revenue growth of 9–10% year-over-year, down from the 15% annual growth rate achieved in fiscal 2025. This moderation is intentional, as Okta aims to refine its go-to-market strategy and focus on high-value opportunities. CEO Todd McKinnon emphasized this pivot, stating that the company will prioritize innovation in its Okta and Auth0 platforms while advancing its Okta Secure Identity Commitment, a framework designed to solidify its leadership in enterprise security.

Investors should note that Okta’s margin discipline is underpinning its new trajectory. The company expects a non-GAAP operating margin of 25% for fiscal 2026, consistent with its Q4 FY2025 performance, and aims to maintain this level despite slower revenue growth. This focus on profitability contrasts sharply with its earlier years, when top-line expansion often came at the expense of margins.

Risks and Challenges Ahead

While Okta’s fundamentals are improving, risks remain. The company operates in a crowded cybersecurity market, where competitors like Microsoft (Azure AD), Duo Security, and Ping Identity are intensifying their efforts. Okta’s reliance on large enterprise contracts also makes it vulnerable to budget cuts in a slowing economy. Additionally, its recent acquisition of Auth0—a move to expand its identity-as-a-service footprint—requires seamless integration to avoid operational distractions.

The CEO’s emphasis on identity security as a “defining priority” is a double-edged sword. While positioning Okta as a critical partner in an era of escalating cyber threats, it also demands sustained investment in R&D and customer support, which could pressure margins if not managed carefully.

Investment Implications: A Hold with Long-Term Potential

Okta’s financials suggest a company transitioning from a high-growth disruptor to a sustainable enterprise software leader. Its $2.523 billion in cash reserves and strong free cash flow (up to $284 million in Q4 FY2025) provide a solid foundation for innovation and acquisitions. However, the stock’s valuation—trading at ~12x forward revenue, down from peaks of ~40x—reflects investor skepticism about its ability to sustain growth.

For investors, the key question is whether Okta can deliver on its profitability targets while maintaining its market share. The Q1 FY2026 results will be pivotal: a beat on revenue and margin expectations could rekindle optimism, while a miss might amplify concerns about its competitive positioning.

Conclusion: A Balancing Act with Payoff Potential

Okta’s recent financial performance highlights a company making tangible progress in profitability and cash generation. With RPO growth outpacing revenue and margins stabilizing, the foundation for long-term success is in place. However, the lower growth guidance and a competitive landscape demand disciplined execution.

Investors should focus on three key data points from the Q1 results:
1. Revenue growth rate: A print closer to the high end of the $678–$680 million range would signal resilience.
2. Margin retention: Maintaining a 25% non-GAAP operating margin amid slower revenue growth will validate cost discipline.
3. RPO trends: Any acceleration in RPO or cRPO would reinforce the durability of Okta’s customer relationships.

While risks persist, Okta’s balance sheet strength and strategic focus suggest it is well-positioned to navigate the current environment. For long-term investors, the stock’s current valuation offers a reasonable entry point—if the company can execute on its transition to a profit-driven growth model.