Okta Stock: Shares Tumble Despite Crushing Q3 Estimates

TLDR

• Okta posted Q3 earnings of 82 cents per share on $742 million revenue, topping analyst forecasts of 76 cents and $730 million
• Shares dropped over 3% after hours as company broke tradition by not giving fiscal 2027 guidance
• Q4 outlook impressed with $748-$750 million revenue forecast and 84-85 cents EPS, both above estimates
• Subscription backlog jumped 17% to $4.29 billion, beating $4.17 billion consensus
• BMO Capital slashed price target to $90 from $112 citing sector-wide valuation pressure

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Okta delivered a solid earnings beat Tuesday evening. Yet the market reaction told a different story.

The cybersecurity company reported third-quarter earnings of 82 cents per share. Revenue came in at $742 million. Wall Street had been looking for 76 cents per share on $730 million in sales.

The numbers looked good on paper. But shares tumbled more than 3% in extended trading.

Okta, Inc., OKTA

The problem wasn’t the results. It was what came next.

Okta chose not to provide fiscal 2027 guidance. This marked a departure from the company’s usual practice of offering preliminary outlooks for the upcoming fiscal year.

Finance chief Brett Tighe explained the decision. He pointed to fourth-quarter seasonality and said guidance would need to be conservative. Investors didn’t buy the explanation.

Revenue growth came in at 12% compared to the prior-year quarter of $665 million. Net income jumped 169% to $43 million, or 24 cents per share. A year ago, the company posted $16 million in net income and broke even on earnings per share.

Subscription revenue reached $724 million, up 11% year over year. Analysts had projected $715 million.

Strong Near-Term Outlook

The company’s Q4 guidance offered some comfort. Okta expects revenue between $748 million and $750 million for the current quarter. Adjusted earnings should land between 84 cents and 85 cents per share.

Both metrics exceeded analyst expectations. The Street had modeled $738 million in revenue and 84 cents in EPS.

Returning performance obligations grew 17% to $4.29 billion. This subscription backlog metric beat the StreetAccount estimate of $4.17 billion.

AI Push Takes Shape

CEO Todd McKinnon discussed the company’s AI strategy in a Tuesday interview. Okta rolled out tools during Q3 that let businesses build AI agents and automate workflows.

McKinnon believes AI agents represent untapped potential. He told CNBC the opportunity could surpass Okta’s core addressable market within five years.

Analyst Response

BMO Capital moved quickly Wednesday morning. The firm lowered its price target from $112 to $90 while maintaining a Market Perform rating.

BMO acknowledged the Q3 beat and raised annual guidance. The firm bumped up its fiscal 2026 estimates slightly.

But sector-wide multiple compression drove the price target cut. BMO called the current remaining performance obligations guidance for January “a touch disappointing.” The firm still considers the guidance conservative and a reasonable foundation for fiscal 2027 projections.

BMO praised management’s execution. The research note highlighted improvements in product portfolio expansion and sales force capabilities.

Okta stock has risen approximately 4% year to date. The cybersecurity sector has seen heightened M&A activity in 2025, with deals from Palo Alto Networks and Google making headlines.

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