Okta Faces Setback Amidst Strong Performance Metrics

Okta's stock struggles post earnings release despite a strong growth trajectory and improved EPS outlook. Investors weigh cautious guidance against solid performance metrics.

Date: 01-06-2025

AI Rating: 7

Performance Review
Okta has reported a solid fiscal Q1 for 2026, showcasing a 12% year-over-year revenue increase to $688 million, surpassing previous forecasts. Notable is the adjusted EPS that surged by 24% to $0.86, exceeding expectations of between $0.76 and $0.77. This performance suggests strong operational efficiency and potential for growth.

Outlook and Guidance
Despite Okta maintaining a conservative revenue forecast of $2.85 billion to $2.86 billion for fiscal 2026, this still indicates a growth rate of about 9% to 10%, signaling resilience in a fluctuating economic environment. The improved EPS forecast indicates positive sentiment for earnings, increasing from a range of $3.15 to $3.20 to $3.23 to $3.28.

Concerns Regarding Retention Rates
While the net dollar retention rate remains over 100% at 106%, it's a concern that it has been declining from 111% a year ago, as this could signal customer dissatisfaction or increased competition. Maintaining a high retention rate is critical for growth in subscription-based models like Okta's, where existing revenue plays a significant role.

Forward-Looking Metrics
Okta's performance obligations backlog increased by 21% to $4.08 billion, with the subscription backlog expected to be recognized in the next 12 months (current RPO) at nearly $2.23 billion, reflecting steady future revenue growth potential. A strong backlog is often viewed favorably as it hints at sustained business performance.

Investment Consideration
While Okta's cautious approach may present short-term pressures, its strategic focus on AI-enhanced security products and specialized sales teams could position it well for long-term growth. The moderated share price movement indicates a potential buying opportunity for investors looking at Okta's long-term prospects in the cybersecurity space.

Stocks: OKTA