Okta's Earnings Beat Expectations Yet Stock Declines 14.6%

Okta's Q1 earnings report showed an EPS of $0.86, exceeding expectations. However, stock price dropped 14.6%, likely due to valuation concerns despite positive revenue growth.

Date: 28-05-2025

AI Rating: 6

Okta's Performance Analysis

In a surprising turn of events, Okta reported fiscal Q1 2026 earnings that exceeded Wall Street expectations with an EPS of $0.86, compared to the anticipated $0.77. Additionally, revenue of $688 million surpassed the forecast of $680.1 million, demonstrating solid operational performance.

While such results might typically lead to positive stock movements, Okta's stock fell 14.6% following the earnings report. This decline can be attributed mainly to investor concerns regarding the company's valuation, as Okta is currently priced at a relatively high multiple of 24.5 times trailing free cash flow. Investor sentiment may have turned negative due to apprehensions around slowing growth rates despite positive earnings.

Earnings Per Share (EPS) and Free Cash Flow (FCF)

Okta's reported adjusted EPS shows a strong performance against prior earnings ($0.35 GAAP compared to a loss of $0.24 in the previous year). This reflects a significant turnaround and may signal potential future profitability. Furthermore, the company generated a positive free cash flow of $238 million, which is remarkably four times the net profit reported, indicating financial health and capacity for investment or returning capital to shareholders.

Future Guidance

Looking ahead, Okta provided guidance for Q2 growth at approximately 10%, alongside an annual forecast of 9-10% for fiscal 2026, with an expected adjusted EPS of $0.83 - $0.84. These figures are promising as they comfortably exceed analyst estimates, suggesting that the company retains positive momentum.

Despite the relatively high valuation and the pressures it exerts, the overall earnings performance, solid free cash flow, and optimistic guidance present a compelling picture for investors considering Okta. However, caution is warranted in light of the pronounced market reaction driven by perceived valuation risks.

Stocks: OKTA