Okta Prepares for Q3 Earnings: Growth Amid Macro Challenges
Okta (OKTA) is scheduled to announce its third-quarter fiscal 2025 results on December 3.
Earnings and Revenue Expectations
For the upcoming quarter, Okta expects non-GAAP earnings between 57-58 cents per share. Revenue projections hover around $648 to $650 million, reflecting an 11% increase compared to the same quarter last year.
The Zacks Consensus Estimate for earnings has stabilized at 57 cents per share, representing a year-over-year growth of 29.55%. Revenue forecasts have similarly positioned at $649.42 million, indicating a rise of 11.20% from the previous year’s figures.
Over the past four quarters, Okta has consistently outperformed the Zacks Consensus Estimate, achieving an average earnings surprise of 27.15%.
Okta, Inc. Price and EPS Surprise
Okta, Inc. price-eps-surprise | Okta, Inc. Quote
Follow the latest EPS estimates and surprises on Zacks Earnings Calendar.
Key Factors Influencing Okta
Okta’s third-quarter results are likely to showcase the advantages gained from increased demand for identity solutions. The company posted a notable 5% year-over-year growth in its total customer base, reaching 19,300 clients. Additionally, customers with over $100K in Annual Contract Value (ACV) grew by 10% to 4,620, with the addition of 200 new customers in this past quarter alone, including 70 in the high-ACV category.
The adoption of Okta’s Workforce and Customer Identity solutions continues to rise, adding momentum heading into the upcoming report. However, the company also faces ongoing challenges from broader economic factors. Investments in security, public sector projects, and customer support are expected to negatively impact subscription gross margins.
Stock Performance and Valuation Insights
Year to date, Okta shares are down 15.6%, lagging behind the Zacks Computer & Technology sector, which has gained 27.1%.
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Currently, shares of OKTA do not appear to be a bargain, receiving a Value Score of D, indicating a stretched valuation. Its forward 12-month Price/Sales ratio stands at 4.71X, significantly higher than the Zacks Internet Software-Services industry average of 2.67X, suggesting it is relatively more expensive than its peers.
Price/Sales Ratio (F12M)
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Favorable Industry Trends for Okta
With rising cybersecurity threats worldwide, the demand for providers like Okta continues to grow. IDC reported that global security product revenues reached $106.8 billion in 2023—a 15.6% increase from 2022. Microsoft (MSFT) leads the market with an 11.6% share, followed by Palo Alto Networks (PANW) at 5%.
The fastest-growing segment is Cloud Native Application Protection Platforms at 31.5%, with Identity and Access Management (IAM) also showing robust growth at 21.4%. IDC projects that the security market will continue to expand, with revenues anticipated to reach $200 billion by 2028, largely driven by the IAM sector.
Okta aims to capitalize on this trend with a strong product portfolio, recently launching new Customer Identity Cloud offerings designed for Generative AI applications. Additionally, their Workforce Identity Cloud tackles challenges related to SaaS governance and identity verification.
Strategic partnerships are also a focus for Okta. Collaborating with organizations like the OpenID Foundation and partners such as Microsoft and Ping Identity, Okta is contributing to a new security standard for SaaS companies.
Moreover, Okta has partnered with NetHope to enhance cybersecurity across the nonprofit sector, committing $2.5 million to foster a safer digital environment globally.
The strong demand for identity solutions signals growth potential for Okta. Their solid product offerings and favorable industry dynamics, exemplified by a Growth Score of A, make Okta an appealing choice for investors focused on long-term gains.
Nonetheless, the current valuation concerns, alongside macroeconomic challenges, pose risks for potential investors. With a Zacks Rank of #3 (Hold), it may be prudent to wait for a more favorable entry point into Okta’s stock.
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