Okta Shares Fall 16% Despite Strong Earnings Report

Okta (OKTA) shares fell 16.16% on Wednesday, closing at $105.22, following the release of its first-quarter fiscal 2026 results on Tuesday. This sharp decline is due to lower expectations for top-line growth in the fiscal second quarter and the full fiscal year.

Second-Quarter Revenue Expectations

Okta projects second-quarter fiscal 2026 revenues between $710 million and $712 million, representing a 10% year-over-year growth compared to 11.5% in the first quarter. The current portion of its remaining performance obligations (RPOs) is expected to range from 10% to 11%. The company anticipates non-GAAP earnings between 83 cents and 84 cents per share.

Fiscal Year 2026 Outlook

For the full fiscal year 2026, Okta forecasts revenues of $2.85 billion to $2.86 billion, reflecting a growth of 9-10% over fiscal 2025. Challenges in the federal business and broader macroeconomic conditions pose potential headwinds. However, non-GAAP earnings guidance for fiscal 2026 has increased to between $3.23 and $3.28 per share, up from earlier guidance of $3.15 to $3.20.

Year-to-Date Stock Performance

Year-to-date, Okta shares have gained 33.5%, outperforming the broader Zacks Computer & Technology index and peers like Microsoft (MSFT) at 8.5%, International Business Machines (IBM) at 14.5%, and CyberArk (CYBR) at 18.4%.

Consensus Earnings Estimates

The Zacks Consensus Estimate for Okta’s second-quarter fiscal 2026 earnings remains steady at 79 cents per share, reflecting a 9.72% growth from the previous year.

Fiscal 2026 Earnings Estimates

The Zacks Consensus Estimate for fiscal 2026 earnings stands at $3.19 per share, suggesting a 13.52% increase year-over-year. Okta has exceeded this estimate in each of the last four quarters, averaging a 13.53% surprise.

Strong Demand for Identity Solutions

Okta continues to experience strong demand for its products such as Identity Governance and Privileged Access. These solutions assist enterprises in managing non-human identities like service accounts. The company ended the first quarter with roughly 20,000 customers and $4.084 billion in RPOs, indicating robust subscription revenue growth.

Additionally, Okta AI capabilities support organizations in improving user experiences and enhancing cyberattack defenses. The company’s products are compatible with various infrastructures, and its governance portfolio has seen a 400% increase over three years, currently valued at nearly $40 billion.

Valuation Concerns

Okta shares are considered overvalued, as indicated by a Value Score of F. The forward Price/Cash Flow ratio stands at 24.59X, compared to the broader sector’s 19.8X, highlighting a premium valuation.

Trading Trends

The stock is currently trading below its 50-day and 200-day moving averages, suggesting a bearish trend. Despite an expanding product portfolio and growing customer base, Okta faces challenges from the current macroeconomic landscape.

Investment Perspective

Okta holds a Zacks Rank #3 (Hold), suggesting that investors may want to wait for a more favorable entry point before acquiring shares.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.