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Okta Embraces Specialization as Financial Outlook Improves

Okta is setting a positive tone for its future, focusing on go-to-market specialization in the Americas’ SMB market. This new layer of strategy promises to align better with the needs of IT security and development teams.

The company’s Chief Executive Officer, Todd McKinnon, expressed excitement about these changes during the recent financial update. As the fiscal year 2026 approaches, Okta plans to further tailor its global go-to-market strategy. This shift aims to meet changing market demands and drive growth for both customers and Okta, reinforcing their commitment to security, expansion, and scalability.

“Identity is security,” stated McKinnon, emphasizing Okta’s strategic moves as the company navigates its leadership role in the identity market. Investing in growth while ensuring efficient spending and cash flow remains a crucial focus.

Brett Tighe, the Chief Financial Officer, detailed the company’s financial position and strong performance in Q3. Key highlights included solid cash flow and overall profitability. Tighe also noted that the impact of the October 2023 security incident could not be quantified in the financial results, while acknowledging that it may have still affected the company in some way.

The financial landscape remains consistent with previous quarters. Companies continue to reassess budgets and software spending, which has resulted in decreased estimates for seats in Okta’s workforce identity business. This scrutinization has put pressure on their net retention rate, although gross retention remains robust.

Okta is partly countering these challenges by successfully selling new products to both new and current customers. Approximately 15% of Q3 bookings came from new offerings. The company’s identity governance solution alone accounts for about one-third of workforce deals. Other new products include Okta privileged access and identity threat protection, which are also gaining traction.

Tighe expressed optimism about the increasing retention rates among customers who adopt more products, suggesting a solid long-term outlook for the business.

Looking ahead to Q4 and fiscal year 2025, Okta projects total revenue growth between 10% to 11% for Q4. The forecast for current remaining performance obligations (RPO) growth stands at 9%, with non-GAAP operating margins expected to reach 23%. Free cash flow margins are estimated at around 32%. Overall revenue growth for FY 2025 is now expected to reach 15%, an increase from earlier projections.

As planning for FY 2026 begins, Okta is maintaining cautious optimism, targeting a non-GAAP operating margin of at least 22% and a free cash flow margin of around 24%. Revenue estimates for FY 2026 are projected between $2.77 billion and $2.78 billion, reflecting about 7% growth.

Tighe reinforced the company’s commitment to operational efficiency and sustained profitable growth in the future. After summarizing the financial outlook, Tighe opened the floor for questions.

David Gennarelli, Senior Vice President of Investor Relations, initiated the Q&A session, indicating a positive sentiment surrounding Okta’s performance and outlook.

Analyst John DiFucci expressed appreciation for the recent results and posed questions about the guidance outlook for next year. In response, McKinnon emphasized the importance of balancing optimism with caution, giving a nod to the solid Q3 results while planning for future uncertainties.

Tighe explained that last year’s security incident created challenges for guidance, which led to a conservative approach. However, the company’s outlook for FY 2025 is more favorable, demonstrating resilience and progress despite external factors.

As the Q&A continued, McKinnon and Tighe reiterated their focus on growth, innovation, and strategic execution, underscoring Okta’s commitment to its mission in the identity security space.

Okta’s Recent Performance: A Look at Growth and Strategic Partnerships

Analyst Insights on Growth Trends

During the latest financial call, John Difucci, an analyst, pointed out that Okta’s current guidance appears to be lower than what was seen two years ago when the company consistently exceeded expectations by over five percentage points. Nevertheless, Okta’s CFO, Brett Tighe, clarified that the company has matured significantly, resulting in more moderate growth compared to earlier years. The overarching trend reflects a natural evolution rather than a downturn.

Q4’s Increased Significance

CEO Todd McKinnon emphasized the importance of Q4 in their overall financial strategy. He noted that the slower growth rate in recent years means that the outcomes of Q4 will play a crucial role in determining the company’s performance trajectory.

On the Horizon: New Partnerships and Opportunities

Eric Heath, an analyst at KeyBanc, inquired about inquiries from Global System Integrators (GSIs) relating to Okta’s consolidated identity platform offerings. McKinnon responded positively, noting substantial progress with GSIs over the past year. Nevertheless, he acknowledged the inherent complexities in overhauling identity management systems, which can slow deal closures but lead to long-term partnerships. Successful collaborations with major clients, such as a recent $5 million annual recurring revenue (ARR) contract, are indicative of this progress.

Consolidated Efforts with Partners

During Q3, Okta secured several substantial deals, credited to fruitful partnerships with various types of integrators. CFO Tighe highlighted that these top deals involved multiple partner categories, including GSIs, Independent Software Vendors (ISVs), and traditional Value Added Resellers (VARs). This diversity in partnerships has contributed to the company’s success and will remain a focal point for future growth.

Analyzing Q3 Performance

Turning to performance analytics, analyst Gray Powell remarked on the fluctuations throughout the earnings season, indicating that Okta’s upward momentum is a welcomed change. McKinnon reflected on the stark differences between Q2 and Q3 in their operational execution. Notably, 15% of bookings in Q3 were attributed to new product offerings, including initiatives in governance and privileged access, highlighting a dynamic shift toward innovative solutions.

As Okta navigates through these complex environments, both the leadership and partnerships underscore a strategic commitment to build lasting value, ensuring sustainable growth in the evolving tech landscape.

Asian Bank’s Bold Strategy Highlights Rise in Compliance and Security Demand

The recent acquisition by an Asian bank underscores a growing trend in the tech industry: a comprehensive approach to security through identity and access management. This move reflects the increasing importance of a zero trust architecture, especially within this bank’s U.S. division, which prioritizes compliance for audit requirements.

The bank’s suite includes essential tools for managing access to applications, financial systems, and servers. As companies embrace more robust products, notable partnerships are forming, further indicating a market shift. While the current progress is commendable, leadership believes there is potential for even greater growth.

“We’re pleased, but we’re not satisfied,” said the executive team, indicating a strong determination to expand beyond current successes.

Gray Powell — Analyst

Thank you.

Brett Tighe — Chief Financial Officer

“Looking at metrics, our contract durations remain strong, contributing to an increase in total remaining performance obligations (RPO), which has now risen by six points compared to current RPO growth,” Tighe explained. The recent close to the fiscal year for U.S. federal accounts showcased strong performance, further highlighting the company’s focus on the public sector, an area where they have invested heavily in research and development.

This commitment to public sector specialization has yielded positive results, reinforcing the company’s position in this crucial segment.

Gray Powell — Analyst

Got it. Thank you.

David Gennarelli — Senior Vice President, Investor Relations

Now, let’s hear from Gabriela Borges at Goldman.

Gabriela Borges — Analyst

Good afternoon. Congratulations on a solid quarter. I’d like to follow up regarding the 15% of bookings coming from emerging products. Can you remind us how that figures into historical data?

Brett, you mentioned there are two dynamics affecting net retention. Can you elaborate on the future of this emerging product line and its potential to offset current pressures?

Todd McKinnon — Co-Founder and Chief Executive Officer

While I don’t have exact historical comparisons, I can say that this emerging product mix is the most robust it has been. The success is largely driven by governance and identity management. Additionally, our identity threat protection tools are becoming increasingly crucial for security-conscious clients, because they provide continuous monitoring of session risks—offering a significant upgrade over traditional multi-factor security.

This shift promises exciting prospects beyond the current 15% share contributed by multiple product innovations.

Brett Tighe — Chief Financial Officer

To add to that, this year we’ve expanded offerings beyond governance. We’re observing a steady increase in percentage contribution year-over-year, marking a turning point for new product sales.

However, current challenges in net retention rates stem from scrutiny on license counts and active users, alongside the enduring impact of economic conditions. We foresee potential declines in net retention for the upcoming quarter but expect healthy gross retention rates to mitigate losses.

Gabriela Borges — Analyst

Thank you.

David Gennarelli — Senior Vice President, Investor Relations

Next, we’ll hear from Hamza Fodderwala at Morgan Stanley.

Hamza Fodderwala — Analyst

Good evening, and thank you for taking my question. Todd, regarding the SEC’s potential investigation of Microsoft, do you have any comments on how companies should navigate vendor lock-in with bundled security services?

Todd McKinnon — Co-Founder and Chief Executive Officer

That’s a critical topic. While I cannot comment on the nuances of the investigation, bundling can limit choices for customers. It’s essential to understand the role of identity management in today’s tech landscape. As companies seek to incorporate identity into their layers of service—whether for collaboration tools or applications—it’s crucial for customers to weigh their options carefully.

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Okta’s Strategy: Enhancing Security Through Neutral Identity Solutions

In today’s digital world, having a strong identity service can have significant advantages. Establishing a robust identity solution not only attracts users but also encourages them to engage with other services offered by the company. This approach is often referred to as a “loss leader.”

Our message to potential customers is clear: “Be cautious of long-term decisions that may limit your choices.” History shows that less flexibility can lead to higher costs and subpar results. In the realm of security, this is even more critical because security threats vary widely. Notably, 80% of security breaches stem from compromised identities.

When organizations rely on a single security solution, they often experience poorer security outcomes. This resonates with many clients, although some view technology primarily from a cost-reduction angle and choose bundled services. Increasingly, however, major tech companies in North America acknowledge that an independent and neutral identity platform provides substantial value. After all, investing one dollar with Okta can yield five to ten times that amount in security benefits and flexibility.

Our mission is ambitious; we are developing an expansive identity platform that addresses multiple needs, including customer and workforce identity management and governance. Currently, we stand as the only provider with a comprehensive foundation and an unbiased approach. Our identity suite is designed to work cohesively, but we remain focused solely on identity solutions, allowing customers the freedom to select the tools that best meet their needs.

David Gennarelli — Senior Vice President, Investor Relations

Next, we have Matt Hedberg from RBC.

Matt Hedberg — Analyst

Thanks, Dave. Todd, I wanted to return to the governance aspect you mentioned earlier. Can you discuss how this has impacted your success and the competitive landscape? What elements have contributed to your achievements this year that you expect to carry over into next year?

Todd McKinnon — Co-Founder and Chief Executive Officer

Governance solutions often face challenges, especially for clients with non-traditional on-premise technologies. Frequently, companies implement governance frameworks around legacy systems like SAP or Oracle. When we step in, clients often use Okta for applications that aren’t part of those traditional systems, particularly SaaS applications that are crucial for compliance and security access control. It’s rare for a company to switch from a legacy governance solution to ours due to the effectiveness of their existing systems, but there is ample opportunity for us to address new use cases.

The governance market is saturated with software options, which means you don’t need decades of features to be successful. I recall my early days at Salesforce; the product was far simpler than competitors like Siebel, yet it succeeded because users didn’t fully utilize all of Siebel’s features. A similar trend exists in the governance sector today—many solutions are not fully deployed. Our product is well-connected to access management, and clients quickly see significant value from its implementation, particularly as we extend integration to both SaaS and on-premise applications.

This quick implementation and immediate value realization constitute our competitive edge in the market.

Matt Hedberg — Analyst

Thank you, Todd.

David Gennarelli — Senior Vice President, Investor Relations

Next, we will hear from Josh Tilton at Wolfe.

Joshua Tilton — Analyst

Thank you, Dave. Brett, could you provide insight into the ongoing pressures on seat and MAU numbers this year? How does that impact your outlook for next year, and how do you reflect this in today’s guidance?

Brett Tighe — Chief Financial Officer

Absolutely, Josh. All these factors are considered in our guidance. Basically, there are two key elements at play: broader market conditions have led companies to scrutinize their licensing purchases more closely, whether for licenses or MAUs. Additionally, we expect that the older customer cohorts will largely stabilize by the first half of fiscal ’26. All of this is reflected in our current guidance.

David Gennarelli — Senior Vice President, Investor Relations

Great. Now let’s move on to Jonathan Ho at William Blair.

Jonathan Ho — Analyst

Good afternoon, and congratulations on a strong quarter. Could you give us more details about your potential go-to-market strategies and why you believe now is the right time to pursue them?

Todd McKinnon — Co-Founder and Chief Executive Officer

Over the past several years at Okta, I’ve observed various go-to-market models. One approach is a generalist strategy, where each sales representative offers a broad range of products. The other end of the spectrum involves specialization, where specific representatives manage individual products. Implementing a thoughtful mix of these approaches might be the key to our success as we move forward.

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Okta Plans Specialization Strategy to Boost Growth

As the organization expands, Okta is re-evaluating its sales strategy to maximize growth and profitability.

Okta’s CEO, Todd McKinnon, emphasized a complete specialization strategy. This approach is expected to enhance productivity and sales performance. However, increased costs are also anticipated. The challenge lies in positioning the organization along the spectrum of specialization as it grows, adapts to market changes, and faces competitive dynamics. McKinnon noted, “We think there’s an opportunity for more growth here than we’re seeing now.”

To support this growth initiative, Okta plans to enhance specialization within its sales teams. McKinnon explained that instead of having sales representatives sell all products, there will be dedicated teams for different product lines, specifically Auth0 and Okta. The diversification will allow reps to focus on selling access management, privileged access, governance, and more.

Brett Tighe — Chief Financial Officer

Tighe reinforced this strategy, stating, “It’s really about productivity.” He highlighted Okta’s focus on AI productivity, which has shown significant gains this year. This change aims to improve efficiency within the organization while maintaining profitability. Tighe expressed confidence that the company can achieve its profit goals for FY 25 and FY 26 while pursuing this specialized model.

Jonathan Ho — Analyst

Thank you.

David Gennarelli — Senior Vice President, Investor Relations

Next, we have Joe Gallo from Jefferies.

Joseph Gallo — Analyst

Thanks, everyone. Could you provide insights into customer identity performance this quarter and discuss its growth potential?

Todd McKinnon — Co-Founder and Chief Executive Officer

Customer identity had an impressive quarter, now exceeding $1 billion in revenue. The growth drivers in this market often differ from those in workforce identity. While workforce identity is security-driven, customer identity is frequently about enhancing customer experience. For instance, a major European retailer recently adopted our customer identity solutions primarily for convenience, seeking to streamline their login process.

We believe that with a heightened focus on developer needs, our customer identity solutions can grow even more. The opportunities often emerge when new applications are developed and enter the self-service funnel, eventually leading to enterprise adoption.

Joseph Gallo — Analyst

Thank you.

David Gennarelli — Senior Vice President, Investor Relations

Let’s turn to Mike Cikos at Needham.

Mike Cikos — Analyst

Hi, thanks for taking my question. Regarding your specialization strategy, could you share some internal metrics or insights that suggest it will be effective?

Todd McKinnon — Co-Founder and Chief Executive Officer

There are several indicators. We’ve seen positive outcomes from targeted approaches, such as in the Americas SMB segment. The public sector experience also offers a broader data set, showcasing the importance of understanding buyer needs. We’re optimistic about the potential in the developer market, and based on our modeling, the expected growth from specialization should outweigh the costs of implementing this strategy.

David Gennarelli — Senior Vice President, Investor Relations

Next, we have Madeline Brooks from BofA.

Madeline Brooks — Analyst

This quarter appears to have been strong for you. Looking ahead, the projected 7% growth rate for next year raises some questions. Could you discuss how this aligns with the core workforce and SIEM market growth?

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Okta’s Outlook: Addressing Growth Challenges in a Competitive Landscape

Madeline Brooks — Analyst

First, I want to clarify your growth guidance of 7%. Does this figure account for potential gains from new bookings or products, or are those potential growth areas already included in that estimate?

Brett Tighe — Chief Financial Officer

To answer your question, the current product offerings are already incorporated into the guidance. The key product to highlight is governance; we are optimistic that it will continue to see growth as we’ve observed in the past couple of quarters, which will make a notable contribution. That’s the main aspect related to new products, Madeline.

Madeline Brooks — Analyst

Thank you. Moving on to the identity market, I see that sectors like workforce and SIEM are both growing at rates higher than the 5%. What measures can Okta take to stimulate growth in these core markets where it appears there may be a loss in market share? I appreciate your insight.

Todd McKinnon — Co-Founder and Chief Executive Officer

This is a critical question for us, as growth is our second priority, with security being our top focus. Ensuring we avoid any security breaches is crucial, and we have invested substantially in enhancing our secure identity initiatives, which focus on four key pillars. I’d be happy to discuss these pillars, but enhancing our internal security infrastructure is key. We have made significant strides in that area. Conversations with tech leaders and security experts reflect a noticeable improvement in our internal security posture, which is something I take great pride in.

Although there remains more work ahead—as security is an ongoing commitment—we are dedicated to maintaining our high security standards. This internal progress is translating into positive momentum with prospects and customers, as they recognize our resilience and growth since navigating challenges. Our product relevance is noteworthy, especially in identity trust and privileged access, which we employ to improve our security infrastructure, where clients can benefit from our approaches.

In summary, a strong security record can enhance our market share as we endeavor to exceed our own growth estimates. If our strategies and actions prove effective, I firmly believe we will not witness any loss in market share. Clients continuously articulate their ongoing identity challenges, indicating there is still vast potential to resolve issues and offer value. We remain committed to delivering solutions to meet those needs.

David Gennarelli — Senior Vice President, Investor Relations

Next, we have Shrenik Kotharia from Baird.

Shrenik Kotharia — Analyst

Thanks for taking my question, and congratulations on a strong performance. The federal sector appears to be a significant growth engine, with half of your top ten deals from this area. This aligns with your progress on certifications and DC-based partnerships. My question pertains to how you expect potential budget shifts and reallocations post-elections to impact your strategy. What contingencies do you foresee for any disruptions tied to political changes?

Todd McKinnon — Co-Founder and Chief Executive Officer

Indeed, we noted that five of our ten top deals are within the U.S. federal sector. A noteworthy win was achieved at the Department of Defense, a follow-up to previous significant contracts we’ve secured. We also managed to close a substantial deal with the largest healthcare provider for the federal government this quarter, which signifies positive momentum.

The growth in identity and security modernization is becoming increasingly relevant as the federal government invests in cybersecurity. Despite the influence of politics, the overarching priority remains enhancing security against attacks. Modernizing outdated systems is critical, and our entry into this sector ties directly into governmental needs. We expect to continue benefiting from the dual demands of modernizing technology and strengthening cyber defenses.

David Gennarelli — Senior Vice President, Investor Relations

Next, we have Rudy Kessinger at D.A. Davidson.

Rudy Kessinger — Analyst

Thanks for the opportunity to ask a question. I want to revisit an earlier point on the guidance around potential breach-related conservatism. Looking at your recent cRPO figures, which have consistently surpassed expectations, can you quantify how much of that could be attributed to conservativeness in your guidance related to breaches? Specifically, what should we anticipate for the upcoming Q4 cRPO figures based on prior conservatism levels?

Brett Tighe — Chief Financial Officer

The level of conservatism in our projections touches on both current RPO and related revenue, along with operational margin considerations. While I can’t provide a specific percentage of conservatism at this time, I want to clarify that our figures are not simply maintaining a conservative estimate of 10% to 15%. We are actively assessing the potential impacts on our guidance as we move forward.

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Okta’s Financial Outlook: Insights from Recent Analyst Call

In this quarter’s analyst call, executives at Okta discussed growth metrics and prospects for the upcoming fiscal year, sharing insights into their performance and strategies.

Growth Forecast Adjustments

Current revenue growth projections for FY ’25 have been revised from 10% to 15%. However, caution surrounds these expectations, as the company is experiencing natural maturation, leading to slightly slower growth due to its expanding size and challenges related to a recent security incident.

Insights from David Gennarelli — Senior Vice President, Investor Relations

Next, we turn to questions from analysts, starting with Saket Kalia from Barclays.

New Business Development and Logo Count

Saket Kalia — Analyst

Thank you for allowing me to ask a question. Brett, could you elaborate on how new logo business is performing this quarter? We anticipated declines in net revenue retention, yet it appears new business acquisitions have stabilized. Can you identify the reasons for this trend and its sustainability into next year?

Brett Tighe — Chief Financial Officer

While we acknowledge the new logo numbers could be improved, the quarter saw an addition of 150 net new logos. Our focus remains on the hunter-farmer model, which encompasses acquiring new logos and upselling to existing customers. This model is crucial in maximizing our growth potential. Current RPO growth stands at 13%, and total RPO growth at 19%. These figures indicate significant opportunities within our existing customer base, especially as 15% of bookings now stem from newer products. Although we have made progress with larger clients and created a significant million-dollar customer cohort, we remain committed to growing our logo count more aggressively.

Further Queries on Profitability

Patrick Colville — Analyst

Thank you for addressing my question. Brett and Todd, if we look back at 2024, Okta’s profitability has markedly improved. You initially guided a fiscal ’25 margin at 17%, which is now set at 22%. How do you evaluate the potential for exceeding this goal? Additionally, can you share your perspective on the hiring trend over the last few quarters?

Brett Tighe — Chief Financial Officer

Regarding profitability, our current focus leans more towards growth. We base our management strategy on the rule of 40, where we prioritize sustainable growth. We anticipate our guidance to be achievable but prefer to invest in growth opportunities across our market. With recent product innovations and partnerships, we remain optimistic about our growth trajectory while standing by our current guidance.

Market Dynamics and Identity Challenges

Rob Owens — Analyst

Thanks, Dave, and good afternoon. Todd, I want to expand on your earlier comments. Given the context around identity issues leading to security breaches, why is there not more momentum in switching solutions? With your hunter-farmer model introduced nine months ago, I would expect better performance than the current 150 new logos each quarter. What factors are affecting this situation?

Todd McKinnon — Co-Founder and Chief Executive Officer

The current customer acquisition numbers reflect challenges primarily in the SMB market, with a greater percentage of logos coming from this sector. However, for customers with over $100K in revenue, we saw an 8% increase. During a recent dinner with partners in Australia, industry insiders noted that while there is a pressing need for improved identity solutions—given that 80% of breaches are identity-related—changing identity solutions can be more complicated than switching firewalls or endpoint protection. We believe patience is essential. Our products feature market-leading technology, positioning us well for future success. We must continue innovating and reaching customers with our offerings.

Closing Statements — David Gennarelli

We will next hear from Peter.

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Okta CEO Discusses AI Impact and Future Monetization Strategies

Peter Levine — Analyst

Thank you, Todd, for your insights on AI. It seems there’s a surge in the use of nonemployee and machine identities, including bots. Can you share how customers are engaging with these identities, specifically regarding their AI usage? Additionally, what are your monetization strategies for overseeing the growth of these nonemployee identities in the coming 12 to 18 months?

Todd McKinnon — Co-Founder and Chief Executive Officer

Absolutely, there are four key points to highlight. Firstly, we are witnessing a new wave of apps and SaaS innovations that require secure logins. Okta serves as the identity layer for countless companies, big and small, some of which you may not have heard of yet but will recognize soon.

Secondly, we are making strides with Okta AI, which enhances our products such as identity threat protection. This AI technology is pivotal for enhancing our security offerings.

Additionally, we introduced Auth for Gen AI, an authentication platform specifically designed for agents. There’s considerable excitement around agents—akin to what we previously called bots. The major difference now is the ability to interact using natural language. However, many of these agents lack secure practices, often saving passwords within the bot, exposing them to potential risks.

With Auth for Gen AI, we’re addressing these vulnerabilities by providing a secure authentication protocol. This is a novel and significant step towards enhancing bot security.

As the AI landscape evolves, we are focused on addressing the challenges posed by the influx of new applications and the need for seamless customer experiences. Our innovations aim to eliminate reliance on outdated practices like storing passwords insecurely and bring about improved single sign-on solutions for both people and bots.

Peter Levine — Analyst

You mentioned monetization earlier. Can you elaborate on how you plan to charge for these new services?

Todd McKinnon — Co-Founder and Chief Executive Officer

Certainly. There’s a clear approach to monetization. For example, our identity threat protection product is available as an upsell. Auth for Gen AI is priced similarly to our existing machine-to-machine authentication, which is billed based on the number of active machines each month.

Peter Levine — Analyst

Thank you for clarifying.

David Gennarelli — Senior Vice President, Investor Relations

We are nearing the end of our time, but let’s take a few more questions. Next is Trevor from JMP.

Trevor Walsh — Analyst

Thank you, Dave. Todd, I’d like some clarification regarding your privileged access product. You’ve indicated that you aren’t facing the expected competition. Is this because you’re not aggressively targeting those competitors? How do you see this evolving as we move forward?

Todd McKinnon — Co-Founder and Chief Executive Officer

We don’t necessarily need to displace SailPoint on-premises to achieve significant business growth. It’s common for companies to invest substantial time and resources into integrating such systems. Once embedded, it’s impractical to replace them. While SailPoint won’t be a major growth engine, it remains stable and well-established.

However, we anticipate that as the governance market shifts more towards cloud solutions and as our products become easier to use and integrate, this market could grow significantly—potentially five to ten times its current size. We foresee capturing a notable share of this expanded market.

This nuanced strategy diverges from the traditional idea that competitors must be removed for growth. Instead, we can focus on addressing emerging use cases, reinforcing the innovative spirit that led to Okta’s formation despite skeptics who believed cloud-based access management wasn’t feasible in the past.

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Okta’s Race for Growth: New Products Drive Revenue as Company Targets Bigger Clients

Gaining Traction in a Competitive Landscape

In a recent discussion, Okta’s leadership outlined the company’s strategic direction, focusing on its established customer base of nearly 20,000. The team believes that starting from this strong position, rather than beginning from governance and privilege solutions on-premise, enhances their competitive advantage. While other vendors may view the landscape differently, Okta is gearing up for success.

Diving into New Product Success

Brian Essex from JPMorgan highlighted Okta’s new product offerings, stating that 15% of recent bookings marked significant traction. He inquired about the mix of new versus existing customers contributing to these results and where the real growth could be found: expanding with existing customers or landing new ones. Todd McKinnon, Co-Founder and CEO of Okta, estimated that the majority of recent sales came from upselling existing clients, including a notable $5 million deal with a large tech company that represented a new customer. This deal involved multiple products, signaling the effectiveness of Okta’s approach.

Okta is positioning itself to meet the needs of larger organizations because they often have established budgets and initiatives. Larger companies are inclined to invest in strategic projects like identity solutions, understanding the long-term benefits of such investments. Additionally, the full suite offered by Okta allows these companies to consolidate vendors and realize cost savings, appealing to their preference for neutral technology to avoid vendor lock-in. This trend is exemplified in Okta’s performance with its $1 million-plus revenue cohort, which now contributes $1 billion to the company’s overall revenue.

Farmer vs. Hunter Strategy

Essex indicated that the opportunities appear to reflect a “farmer” strategy, focusing on existing client growth, yet there’s a recognizable momentum in new client acquisition too. McKinnon affirmed this perspective, noting that while more upselling currently occurs, as Okta’s products mature, the potential to attract new customers will increase alongside an expanding product line. Historically, Okta has successfully grown in similar ways, developing products from initial offerings to more comprehensive solutions.

Pricing and Bundling Strategies on the Horizon

When questioned about pricing for new solutions like privileged access and threat protection, McKinnon clarified that Okta’s progress in these areas is still in the early stages. However, early indicators suggest that these solutions could account for 30% of deal value if offered without previous governance or privilege services. The pricing uplift for identity threat protection appears similar, indicating a promising path for revenue growth.

Looking ahead, Adam Borg from Stifel asked about potential changes to Okta’s packaging and pricing strategies for fiscal ’26. McKinnon mentioned ongoing experiments suggesting a shift from a strict à la carte model to a more simplified pricing structure. This shift aims to better accommodate customer needs without overwhelming them with numerous choices, enabling smoother purchasing experiences.

International Focus and Future Plans

Lastly, as Fatima Boolani from Citi noted, Okta has recently prioritized its North American operations. The company’s next steps may include bolstering its international presence as it continues its mission to provide integrated identity solutions across diverse markets.

Okta’s International Business Faces Challenges Amid Economic Headwinds

Executives Discuss Slower Growth and Strategic Opportunities

During a recent earnings call, executives from Okta detailed the slowdown in international business demand. As economic conditions in Europe differ from North America, this has prompted leaders to focus on long-term growth strategies.

Todd McKinnon — Co-Founder and Chief Executive Officer

Okta’s co-founder Todd McKinnon emphasized the importance of international markets. He noted, “I’ve been personally investing time in international operations.” Last week he visited Australia and Asia, reinforcing his commitment to those regions. A new leadership role in Europe has also been filled, which McKinnon sees as crucial for adapting to economic challenges there.

He explained, “Europe’s economic conditions are tougher than in North America.” This consistent difficulty over the past few quarters affects performance. However, the demand for security solutions remains strong universally. “We have significant growth opportunities in international markets,” McKinnon stated, expressing confidence in the company’s global prospects over the coming quarters.

Brett Tighe — Chief Financial Officer

CFO Brett Tighe contributed to the discussion by highlighting the opportunity presented by various partner channels, including Managed Service Providers (MSPs) and Global System Integrators (GSIs). “There’s untapped potential in international that we aim to leverage,” he remarked. As for current performance metrics, Tighe noted, “They aren’t drastically different,” but acknowledged the more challenging macro conditions overseas.

Fatima Boolani — Analyst

Boolani offered a thoughtful expression of gratitude for the insights shared during the call.

David Gennarelli — Senior Vice President, Investor Relations

Gennarelli opened the floor for the final question, leading to a discussion with analyst Peter Weed about the company’s future. Weed expressed optimism about recent trends, particularly regarding backlog reduction, noting a gradual improvement expected by mid-2026.

He emphasized the gradual nature of these changes rather than an immediate shift. “Should we expect a drop-off over 12 to 18 months?” he asked, seeking clarity on how this timeline will affect net revenue retention rates. Tighe responded by reinforcing Weed’s point: “It’s not a cliff; we expect a gradual easing of challenges.” However, he suggested awaiting the conclusion of Q4 for clearer expectations regarding net revenue retention for fiscal year 2026.

Peter Weed — Analyst

Weed conveyed excitement regarding the future outlook, prompting Tighe to thank him for the insights. The CFO maintained focus on upcoming financial details post-Q4.

David Gennarelli — Senior Vice President, Investor Relations

Gennarelli wrapped up the call, sharing upcoming events, including attendance at the Scotiabank Global Tech Conference on December 10th. He expressed appreciation for participants’ engagement throughout the call.

Todd McKinnon — Co-Founder and Chief Executive Officer

In closing, McKinnon thanked everyone for their participation.

Brett Tighe — Chief Financial Officer

Tighe echoed McKinnon’s gratitude as the call concluded.

Duration: 0 minutes

Call Participants:

David Gennarelli — Senior Vice President, Investor Relations

Todd McKinnon — Co-Founder and Chief Executive Officer

Brett Tighe — Chief Financial Officer

Various Analysts — Multiple Analysts

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