Okta's Q3 2026: Contradictions Emerge on Identity Consolidation, AI Agent Security, and Sales Strategy

Date of Call: None provided

Financials Results

• Revenue: Q4 FY'26 expected total revenue growth of 10%; FY'26 raised outlook to 11% total revenue growth (current RPO guidance for Q4: $2.45B; current RPO growth guidance 9%).
• Operating Margin: Non-GAAP operating margin expected 25% in Q4 FY'26; FY'26 non-GAAP operating margin now expected 26%.

Guidance:

• Q4 FY'26: total revenue growth expected 10% and current RPO growth ~9%.
• Q4 FY'26 non-GAAP operating margin expected ~25%; free cash flow margin ~31%.
• FY'26: raised outlook to 11% total revenue growth, non-GAAP operating margin ~26%, free cash flow margin ~29%.
• FY'27 guidance will be issued on the Q4 earnings call after the seasonally largest quarter.

Business Commentary:

* Strong Q3 Financial Performance: - Okta experienced a 12% increase in total revenue for Q3 2026 compared to the previous year, reflecting strength in large customer upsells and new product adoption. - The growth was driven by the successful integration of Okta's new products, such as Okta Identity Governance and Okta Privileged Access, which improved customer security posture and reduced complexity in enterprise landscapes.

• Focus on Okta Secures AI:
• The company sees securing AI agents as a significant new opportunity and catalyst for growth, with over 100 customers representing over $200 million in existing ARR engaged with Okta's AI solutions.

• Interest in this area is driven by the market trend of AI adoption and the need for companies to ensure secure access control and identity governance for AI agents.

• Sales Productivity and Specialization:

• Okta has seen improvement in sales productivity and the average deal size for new customers, indicating progress in their go-to-market specialization strategy.

• This success is attributed to the company's focus on product innovation, the specialization of sales teams based on buyer personas, and the strengthening of sales productivity metrics.

• Growth in Large Customer and Partner Relationships:

• Okta reported a 17% increase in the number of $1 million deals, highlighting growth in larger strategic accounts and partner transactions.
• This growth is supported by strong partnerships with major technology companies, such as Auth0, and a significant investment in enhancing the partner channel to drive more transacted deals.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "We're pleased to report another solid quarter of results." CFO: "We are raising our outlook and now expect total revenue growth of 11%" and "we're enthusiastic about the trends...this gives us confidence to continue making critical investments."

Q&A:

• Question from Gray Powell (BTIG): What gets customers to consolidate IAM, governance, PAM and customer identity to Okta and are there commonalities among customers who consolidate?
  Response: Consolidation is typically triggered by broader tech shifts (cloud/app modernization and now AI); customers consolidate to reduce complexity and improve security posture, and partners are enabling many large deals.

• Question from Ittai Kidron (Oppenheimer): Do companies need to be Okta customers to deploy your AI capabilities and how much can AI uplift customer spend?
  Response: Agentic identity security targets both existing Okta customers and broader developers via Auth0; early traction (~100 customers, ~$200M ARR) and management views the agentic TAM as potentially larger than workforce+customer identity.

• Question from John DiFucci (Guggenheim): Any subjective commentary on how the world looks for Okta next year given you didn't give FY'27 guidance?
  Response: Management is optimistic about momentum, is adding sales capacity, but will withhold FY'27 guidance until after Q4 because Q4 is seasonally largest and materially affects FY'27 visibility.

• Question from Fatima Boolani (Citi): Where is Okta's portfolio most relevant for agentic commerce and what role will customer identity play?
  Response: Auth0 for AI agents serves builders/developers; Okta platform provides discoverability, governance and fine‑grained authorization—both sides are commercially relevant and complementary.

• Question from Joshua Tilton (Wolfe): Bookings growth year‑to‑date seems in line with Street—how should we think about that for next year?
  Response: Management sees improving business momentum and productivity but will not quantify Street alignment; they're confident in trajectory and are adding capacity to address demand.

• Question from Jonathan Ho (William Blair): Update on sales realignment and pace for net retention (NRR) recovery?
  Response: GTM specialization is working (lower attrition, higher AE tenure, improving productivity); NRR remains around ~106% with healthy gross retention—upsells and new product adoption will drive NRR over time.

• Question from Annick Baumann (Jefferies): What are the puts and takes in the conservative Q4 guide and is the guidance framework consistent with history?
  Response: Guidance remains deliberately conservative given Q4 seasonality; management aims to get closer to the pin and will rely on market conditions plus internal expectations when finalizing Q4 results.

• Question from Shrenik Kothari (Baird): Are buyers consolidating AI governance and what timelines/conversion patterns have you seen among the 100+ engaged customers?
  Response: Large customers are pursuing wholesale consolidation (replacing multiple vendors) to enable agentic futures and broader application coverage; consolidation enables cost savings, better governance and agent access to more apps.

• Question from Brad Zelnick (Deutsche Bank): Composition of recent headcount adds—are they mostly go‑to‑market?
  Response: Hiring mix is primarily go‑to‑market plus additions in lower‑cost regions for R&D and G&A to increase product and operational capacity.

• Question from Yun Suk Kim (Loop Capital): Are early AI agents vendor‑provided or custom and does your approach differ?
  Response: Most early deployments are custom‑built agents; customers expect a multi‑platform world and seek a neutral identity layer to avoid vendor lock‑in.

• Question from Michael Cikos (Needham): Are you formalizing hunter/farmer splits and how are you thinking about sales capacity hires?
  Response: A hunter/farmer model was implemented in the U.S. commercial business with good productivity; enterprise remains focused on platform specialization—capacity additions will be methodical and may include more hunter roles over time.

• Question from Tomer Zilberman (BFA): Any concerns about seat count reductions offsetting agent‑pricing opportunity?
  Response: Agent products are priced per agent (one‑to‑many versus per user); management sees no material headwind from seat reductions and expects aggregate net upside as agentic adoption grows.

• Question from Joe Vandrick (Scotia): Which side is getting more traction—Auth0 developer side or workforce/enterprise side?
  Response: Traction is similar: Auth0 drives developer self‑service adoption; Okta for AI agents targets enterprise IT/security buyers—both motions are early but show promise.

• Question from Gabriela Borges (Goldman): When packaged vendors embed identity (e.g., ServiceNow + Veza), how do you view competitive risk?
  Response: Platform vendors will attempt to embed identity, but Okta's focused breadth and integrations make it hard for those solutions to cover all use cases, preserving Okta's advantage.

• Question from Rudy Kessinger (David & Co.): Is sales productivity improving QoQ and YoY and how will you pace sales hires into FY'27?
  Response: Sales productivity improved both quarter‑over‑quarter and year‑over‑year; attrition is down and tenure up, so hires will be added in a measured fashion to preserve productivity and engagement.

Contradiction Point 1

Consolidation of Identity Management Services

It highlights differing perspectives on the drivers for consolidation of identity management services, which could impact Okta's strategic positioning and market penetration.

Can you clarify customer adoption of consolidated IAM, governance, PAM, and customer identity solutions through Okta, including factors driving consolidation and win rates? - Gray Powell (BTIG)

20251203-2026 Q3: The answer is wrapped up in other technological changes. For instance, cloud transformation or moving to take advantage of AI. These changes catalyze the need to consolidate identity solutions. Okta is seeing strong results with large customer upsells and new products. - Todd McKinnon(CEO)

How are you consolidating IAM, governance, PAM, and customer identity under Okta? What drives customers to consolidate? - Gray Powell (BTIG, LLC, Research Division)

2026Q3: Consolidation is driven by other technological changes such as cloud and AI adoption. Customers consolidate when there are significant technological shifts in their business. Okta offers a modern and unified platform that reduces complexity and improves security, making it attractive for customers to consolidate their various identity management needs. - Todd McKinnon(Co-Founder, Chairman & CEO)

Contradiction Point 2

AI Agent Security and Okta's Role

It pertains to the role of Okta in securing AI agents, which is a significant market opportunity for the company. The differing responses suggest a shift in how Okta positions itself in relation to AI agent security.

Can Okta's AI capabilities be applied to any company, including those not using Okta for core access management? How will AI elevate the total bill for customers? - Ittai Kidron (Oppenheimer)

20251203-2026 Q3: Okta's AI capabilities are in high demand. Customers are stuck between delivering AI workflows with generic agents or providing access to all their data, causing security risks. Okta provides a controlled approach to manage access for AI agents. - Todd McKinnon(CEO)

How is AI impacting Okta's AI capabilities and how can customers implement core access management without Okta? - Ittai Kidron (Oppenheimer & Co. Inc., Research Division)

2026Q3: Interest in AI capabilities is extremely high. Customers are stuck between delivering generic AI agents with no data access or giving agents full access, resulting in security risks. Okta helps manage access, roles, and privileges for AI agents, enabling companies to control access and monitor behavior. Customers are turning to Okta due to its flexibility, security, and ability to integrate with multiple platforms. - Todd McKinnon(Co-Founder, Chairman & CEO)

Contradiction Point 3

AI Agent Security and Market Opportunity

It pertains to the perception and strategy regarding the market opportunity and security solutions for AI agents, which could influence product development and competitive positioning.

Can Okta's AI capabilities be used by companies not using its core access management? How will AI increase customer costs? - Ittai Kidron (Oppenheimer)

20251203-2026 Q3: Okta's AI capabilities are in high demand. Customers are stuck between delivering AI workflows with generic agents or providing access to all their data, causing security risks. Okta provides a controlled approach to manage access for AI agents. - Todd McKinnon(CEO)

How will Okta implement identity security protections for agentic workflows? - Gregg Moskowitz (Mizuho Securities)

2026Q1: As AI projects move from POCs to production, identity security for non-human identities becomes crucial. Okta's solutions are well-positioned here, and we anticipate increased adoption as more projects move to production. - Todd McKinnon(CEO)

Contradiction Point 4

Sales Strategy and Specialization

It involves the approach to sales strategy and go-to-market specialization, which could impact sales effectiveness and product adoption.

What updates can you provide on sales realignment efforts and net retention pace? - Jonathan Ho (William Blair)

20251203-2026 Q3: We're starting to carve territories for new logo acquisition, but it's early stages. Our focus is on balancing both new logo acquisition and existing account management. - Eric Kelleher(COO)

Is there any softness in April that could impact your guidance? - Eric Heath (KeyBanc Capital Markets)

2026Q1: We're off to a solid start, with a strong performance on Auth0 and positive pipeline trends. The transition to specialization has been incremental, and costs have changed, but we're pleased with the results. - Todd McKinnon(CEO)