Okta Stock: Why Investors Sold Off Despite Strong Earnings Beat

TLDR

• Okta beat Q3 estimates with 82 cents EPS versus 76 cents expected and revenue of $742 million versus $730 million expected
• Stock fell over 3% after hours because the company did not provide fiscal 2027 guidance, breaking from previous practice
• Q4 guidance came in strong with expected revenue of $748-$750 million and EPS of 84-85 cents, both ahead of estimates
• BMO Capital lowered price target from $112 to $90 due to sector-wide multiple compression while keeping Market Perform rating
• CEO says AI agent opportunities haven’t been fully reflected in results yet but could exceed core market over next five years

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Okta reported earnings that crushed Wall Street expectations on Tuesday. But investors weren’t impressed.

The identity management company posted Q3 earnings of 82 cents per share on revenue of $742 million. Analysts had expected 76 cents per share on revenue of $730 million.

Despite the beat, shares fell more than 3% in after-hours trading. The culprit? Okta broke with tradition and didn’t provide preliminary guidance for fiscal 2027.

Okta, Inc., OKTA

Finance chief Brett Tighe blamed seasonality in the fourth quarter. He said giving guidance would require “some conservatism.” That explanation didn’t satisfy investors who had grown accustomed to the longer-term outlook.

The company’s Q3 performance showed healthy growth across the board. Revenues climbed almost 12% from $665 million in the year-ago period.

Net income surged 169% to $43 million, or 24 cents per share. That compared to $16 million, or breakeven, a year earlier.

Subscription revenues grew 11% to $724 million. Analysts had estimated $715 million.

AI Agents Could Expand Market

CEO Todd McKinnon talked up the company’s AI prospects in a CNBC interview. Okta launched a capability during Q3 that lets businesses build AI agents and automate tasks.

McKinnon said the upside from AI agents hasn’t been fully reflected in results yet. He believes the opportunity could exceed Okta’s core total addressable market over the next five years.

Strong Q4 Outlook and Backlog Growth

For the current quarter, Okta expects revenues between $748 million and $750 million. The company also forecast adjusted earnings of 84 cents to 85 cents per share.

Both figures came in ahead of analyst expectations. Wall Street had penciled in $738 million in revenues and 84 cents EPS for Q4.

Returning performance obligations, which represent Okta’s subscription backlog, rose 17% from a year ago. The figure hit $4.29 billion and beat the $4.17 billion StreetAccount estimate.

Analyst Action and Sector Trends

BMO Capital responded to the earnings by lowering its price target on Wednesday. The firm cut its target to $90 from $112 while keeping a Market Perform rating.

BMO acknowledged Okta beat expectations on all key metrics and raised annual guidance. The firm modestly increased its fiscal 2026 estimates.

But BMO cited sector-wide multiple compression as the reason for the lower price target. The firm noted Okta’s management provided current remaining performance obligations guidance for January that was “a touch disappointing.”

BMO believes the guidance is likely conservative and provides a reasonable starting point for fiscal 2027 revenue growth projections.

This year has been active for cybersecurity companies. Major acquisition deals came from Palo Alto Networks and Google, and several new IPOs hit the market.

Okta shares have gained about 4% this year. The stock closed at $82.02 before the after-hours decline on Tuesday.

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