Okta Stock Drops 33% on Cautious Q2 Guidance

Okta Inc., a leading provider of identity and access management solutions, saw its stock price plummet during pre-market trading following the release of its first-quarter earnings report. The decline was attributed to the company's cautious guidance for the second quarter, which fell short of market expectations despite the company reporting stable financial performance for the quarter.

Analysts from Morgan Stanley, led by Keith Weiss, noted that while Okta's first-quarter metrics exceeded expectations, the guidance for the second quarter and the fiscal year 2026 was less optimistic. The management team has factored in macroeconomic uncertainties, leading to a more balanced strategy. Weiss and his team believe that this approach is reasonable and continue to see investment opportunities in the identity security sector. They highlighted that while large customer growth and new product performance are encouraging, the management's tone seems to have shifted due to potential risks associated with the uncertain macroeconomic environment.

Weiss and his team remain bullish on identity security as a top priority for enterprise organizations and believe Okta is well-positioned. However, they pointed out that Okta's recent stock performance, which saw a 33% increase over the past three months, may have fueled elevated expectations. If the tone shifts, it could cause investor hesitation.

Wells Fargo reiterated its "hold" rating on Okta, with a target price of $110 per share. Andrew Nowinski, the lead analyst, stated that despite Okta's solid first-quarter performance, the stock price dropped due to the company's conservative guidance for the second quarter, which was significantly lower than market expectations. Nowinski and other analysts noted that the slowdown in subscription revenue growth led to the reiteration of the "hold" rating.

Jefferies maintained its "hold" rating on Okta but lowered its target price from $135 to $130 per share. Joseph Gallo and his team at Jefferies noted that Okta achieved "healthy" performance, with current remaining performance obligations (cRPO) growing 14% year-over-year, exceeding the midpoint estimate by 2%. However, this did not meet the high investor expectations of approximately 15% growth. The analysts also pointed out that the cRPO guidance for the second quarter was 1% lower than market expectations and unexpectedly suggested a sequential decline for the first time since Okta's IPO. On the positive side, Okta's profit margins exceeded expectations, and the company raised its free cash flow (FCF) guidance for the fiscal year 2026 by 1 percentage point to around 27%.