Okta's Q2 2026: Contradictions Emerge on Macroeconomic Guidance, Sales Strategy, AI Security Monetization, and New Product Impact

The above is the analysis of the conflicting points in this earnings call

Guidance:

- Q3 FY26 total revenue growth expected at 9%–10%.- Q3 FY26 current RPO growth expected at 10%.- Q3 FY26 non-GAAP operating margin expected at 22%.- Q3 FY26 free cash flow margin expected at ~21%.- FY26 total revenue growth raised to 10%–11%.- FY26 non-GAAP operating margin expected at 25%–26%.- FY26 free cash flow margin expected at ~28%.- Removed macro and U.S. federal conservatism from outlook.- Anticipate closing Axiom Security acquisition later this quarter.

Business Commentary:

* Strong Financial Performance and Product Innovation: - Okta reported strong Q2 results with continued strength among large customers, new products, and the public sector contributing significantly to its performance. - The growth was driven by the success of new products like Okta Identity Governance and Okta Privileged Access, as well as strategic acquisitions such as Axiom Security.

• Public Sector Performance and Acquisitions:
• Five of Okta's top ten deals in Q2 were with the U.S. public sector, including the largest deal secured with a DoD agency.

• The public sector performance was strong due to renewals and new deals, despite some delays in procurement processes, and strategic acquisitions like Axiom Security enhanced their capabilities.

• Strong Financial Guidance and Capital Allocation:

• Okta raised its outlook for FY '26, expecting total revenue growth of 10% to 11% and a non-GAAP operating margin of 25% to 26%.

• This reflects increased confidence in their go-to-market specialization and strategic capital allocation, including investments in the business and opportunistic M&A.

• Identity Security and AI Integration:

• Okta emphasized the importance of an identity security fabric to secure every identity type, including AI agents, and introduced Cross App Access to enhance security and control of AI connections.
• This focus on AI security is driven by the growing adoption of AI agents and the need to manage the associated risks effectively.

Sentiment Analysis:

• Management said they were "pleased with solid Q2 results," highlighted "record pipeline generation," and removed macro/federal conservatism from guidance. They raised full-year outlook to 10%–11% revenue growth with 25%–26% non-GAAP operating margin and ~28% FCF margin. Public sector was strong, with 5 of top 10 deals from U.S. government and a largest deal at a DoD agency.

Q&A:

• Question from Brad Alan Zelnick (Deutsche Bank): With NRR stabilizing (106% referenced) and macro caveat removed, what indicators support guidance and has NRR bottomed?
  Response: NRR should hover around current levels near term, varying with mix; macro caution was removed as Q2 showed no new headwinds, implying stability ahead.

• Question from Matthew George Hedberg (RBC Capital Markets): What adoption trends are you seeing in the AI-native cohort across products and consolidation?
  Response: AI-native customers resemble others in product mix but grow faster and are investing heavily in identity security and AI agents, positioning Okta well.

• Question from Eric Michael Heath (KeyBanc Capital Markets): Why must identity be independent, and how should the DoD deal affect RPO/cRPO?
  Response: Independence enables consolidation without vendor lock-in across diverse stacks; the DoD deal is one year, so RPO and cRPO impact are the same.

• Question from Brian Lee Essex (JPMorgan): Update on sales force specialization (hunter–farmer, platform focus) and productivity/hiring; and channel momentum?
  Response: Specialization is driving higher productivity and record pipeline; partners touched all top 20 deals and partner-sourced pipeline grew, boosting confidence.

• Question from Joshua Alexander Tilton (Wolfe Research): Which identity areas benefit most from AI, and how do Cross App Access and the Axiom deal fit?
  Response: Near term, securing NHIs/service accounts via ISPM and OPA leads; Axiom adds top PAM talent and database connection depth; Cross App Access standardizes secure agent-to-app connections.

• Question from Gregg Steven Moskowitz (Mizuho Securities): Any change in upsell/cross-sell rates by segment, and what’s early demand for suites?
  Response: Upsell/cross-sell trends are similar to recent quarters, driving larger customers; new suites are meeting demand to bundle use cases, with early positive traction.

• Question from John Stephen DiFucci (Guggenheim Securities): With macro/federal prudence removed, should we expect smaller beats, and how long is GTM specialization a headwind?
  Response: Guidance is now closer to the pin after overestimating macro risk; specialization benefits are emerging but will take time to fully mature.

• Question from Shrenik Kothari (Robert W. Baird & Co.): How will you monetize Cross App Access and securing AI agent workflows—bundled or stand-alone?
  Response: Open standards expand identity’s value; today monetized via ISPM and OPA (NHIs/credentials), and over time by managing AI agents natively within Okta.

• Question from Adam Charles Borg (Stifel): Where is sales productivity vs history, and what triggers more hiring in H2/FY27?
  Response: Productivity improved and pipeline hit all-time high under specialization; further investment will follow continued strong Q3/Q4 execution.

• Question from Michael Joseph Cikos (Needham & Company): Did public sector outperform expectations, and is the environment now normalized or just better execution?
  Response: Uncertainty eased; while some contracts restructured (fewer users), upsell into more products offset, reflecting mission-critical demand and solid execution.

• Question from Andrew James Nowinski (Wells Fargo Securities): Why hasn’t platform consolidation boosted workforce ACV more, and outlook for workforce ACV?
  Response: Expect improvement as customers see rapid, modern deployments (e.g., fast OIG time-to-value), with sales specialization and R&D expanding upmarket features.

• Question from Jonathan Blake Ruykhaver (Cantor Fitzgerald): Can PAM be delivered broadly and cost-effectively, and how does Axiom support that strategy?
  Response: Okta aims to secure every identity/use case; broad employee protection (e.g., FastPass) plus open integrations; Axiom deepens PAM to scale across identities.

• Question from Robbie David Owens (Piper Sandler & Co.): Reconcile RPO vs cRPO trends and comment on GRR durability.
  Response: Contract duration incentives normalized after prior increases, explaining RPO/cRPO dynamics; GRR remains healthy and a company hallmark.

• Question from Annick Jana Baumann (Jefferies LLC): Any vertical/geo color beyond federal, and how do you unlock international?
  Response: Enterprise/upmarket strength continues; internationally, focus and invest in top 10 countries to reach potential rather than spreading too thin.

• Question from Gabriela Borges (Goldman Sachs Group): Progress with security buyers amid Palo Alto’s push; how do you compete in CISO-led conversations?
  Response: Identity spans security and operations; Okta’s breadth across identity types/use cases and product capabilities, not vendor bundling, wins enterprise decisions.