Okta's Q2 2026 Earnings Call: Contradictions Emerge on NRR, Identity Independence, cRPO, and AI-Native Cohort Trends

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

Guidance:

- Q3 FY26 outlook: revenue growth 9%-10%, current RPO growth ~10%.- Q3 FY26 non-GAAP operating margin ~22%; free cash flow margin ~21%.- FY26 outlook raised: revenue growth 10%-11%.- FY26 non-GAAP operating margin 25%-26%.- FY26 free cash flow margin ~28%.- Removed prior macro and U.S. federal conservatism from outlook.- Go-to-market specialization remains factored; expect continued productivity gains and strong pipeline.- Expect Acxiom Security acquisition to close later this quarter.

Business Commentary:

Strong Financial Performance:* - Okta reported strong Q2 results with consistent performance across large customers and new product contributions. - Growth was driven by a strong showing in the public sector and the successful integration of new products like Okta Identity Governance and Okta Privilege Access.

• Specialization and Product Innovation:
• Okta's specialized go-to-market teams have shown encouraging signals, contributing to increased sales productivity and record pipeline generation.

• The company is leveraging the breadth of its modern identity security products to consolidate vendors and provide comprehensive security solutions.

• Acquisition Strategy:

• Okta announced a definitive agreement to acquire Acxiom Security, aimed at enhancing its Privilege Access capabilities.

• This acquisition is intended to strengthen Okta's position in securing AI agents and nonhuman identities, further positioning Okta in the rapidly changing AI environment.

• Public Sector Strength:

• Five of Okta's top ten deals in Q2 were from the US public sector, contributing significantly to revenue growth.
• Okta's strategic focus on the public sector, despite some contract restructuring, has led to strong renewals and new business opportunities.
  

  Sentiment Analysis:

  • Management reported a solid Q2, record pipeline generation, and strong public sector momentum. They removed macro/federal conservatism from the outlook and raised full-year FY26 guidance (revenue growth 10%-11%, operating margin 25%-26%, FCF margin ~28%). Commentary highlighted improving sales productivity, stabilized NRR, and continued success of new products and suites.

  Q&A:

  • Question from Brad Zelnick (Unknown firm): Has NRR bottomed and what drove the removal of the macro caveat from guidance?
  • Response: NRR should hover around current levels depending on mix; macro headwinds didn’t materialize in Q2, so management removed that prudence from guidance.
  • Question from Matt Hedberg (Unknown firm): What are you seeing with AI-native customers and product adoption?
  • Response: AI-native customers buy similar products but grow faster; they prioritize identity security and building AI agents, where Okta is well positioned.
  • Question from Eric Heath (Unknown firm): Why must identity be independent, and how does the DOD deal impact RPO/CRPO?
  • Response: Independence avoids vendor lock-in and consolidates fragmented legacy stacks; the DOD deal is one year, so RPO equals CRPO.
  • Question from Brian Essex (Unknown firm): Update on salesforce specialization and partner/channel momentum?
  • Response: Specialization lifted productivity and produced record pipeline; more AE-sourced pipe and partners touched 20 of top 20 deals, aiding execution.
  • Question from Josh Tilton (Unknown firm): Which identity areas benefit most from AI, and how do Acxiom and cross-app access fit?
  • Response: Immediate value comes from managing NHIs/service accounts via OPA/ISPM/IG; Acxiom adds PAM talent and DB infra access; cross-app access is an open standard to safely connect AI agents.
  • Question from Greg Moskowitz (Unknown firm): Any change in upsell/cross-sell rates and early demand for suites?
  • Response: Upsell/cross-sell remains strong with large customers getting larger; suites are early but helping customers adopt the identity security fabric.
  • Question from John DiFucci (Unknown firm): Does removing macro prudence imply fewer beats, and how long is GTM a headwind?
  • Response: Macro prudence is removed; GTM specialization remains in guidance as it ramps; targeting closer-to-the-pin guidance going forward.
  • Question from Adam Borg (Unknown firm): Where is sales productivity versus history and what triggers more hiring?
  • Response: Productivity improved with specialization and record pipeline; further hiring will align with strong H2 performance given back-end loaded year.
  • Question from Mike (Unknown firm): Did public sector perform better than expected and is the environment normalized?
  • Response: Public sector outperformed prior caution; some restructuring offset by upsell, fundamentals strong, and conservatism has been removed.
  • Question from Rob Owens (Unknown firm): How should we reconcile RPO vs. CRPO trends and any update on GRR?
  • Response: Prior RPO strength was driven by duration incentives; duration is normalizing, so effects are moderated; GRR remains healthy.
  • Question from Gabriela Borges (Unknown firm): Progress with security buyers and views on Palo Alto/CyberArk implications?
  • Response: Identity spans security and operations; Okta’s breadth across identity types/use cases and neutrality differentiate; no meaningful competitive landscape change expected.