Okta OKTA is set to release third-quarter fiscal 2025 results on Dec. 3.
For the fiscal third quarter, it anticipates non-GAAP earnings in the range of 57-58 cents per share. Revenues are expected in the range of $648-$650 million, indicating growth of 11% from the year-ago period’s reported figure.
The Zacks Consensus Estimate for earnings has remained steady at 57 cents per share, indicating year-over-year growth of 29.55%. The consensus mark for revenues is pegged at $649.42 million, indicating an increase of 11.20% from the year-ago quarter’s reported figure.
Okta’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average earnings surprise being 27.15%.
Okta, Inc. Price and EPS Surprise
Okta, Inc. price-eps-surprise | Okta, Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Let’s see how things have shaped up for Okta prior to this announcement:
Factors to Note for Okta
The company’s third-quarter fiscal 2025 results are expected to reflect the benefits of increased use cases of identity solutions.
Expanding clientele has been a key catalyst. OKTA exited the second quarter of fiscal 2025 with the total customer count increasing 5% year over year to 19,300. Customers with more than $100K in Annual Contract Value (ACV) increased 10% year over year to 4,620. It added 200 new customers in the reported quarter, out of which 70 customers were in the $100K-plus ACV category.
Okta’s Workforce and Customer Identity solutions have been gaining adoption and the momentum is expected to have continued in the to-be-reported quarter.
However, Okta’s fiscal third-quarter performance is expected to have suffered from continued macroeconomic challenges. Investments across key areas, such as security, public sector and customer support, are expected to have hurt subscription gross margin in the to-be-reported quarter.
Price Performance & Valuation
Okta shares have lost 15.6% year to date, underperforming the Zacks Computer & Technology sector’s return of 27.1%.
OKTA Shares Underperform Sector
Image Source: Zacks Investment Research
OKTA stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales, OKTA is trading at 4.71X, higher than the Zacks Internet Software-Services industry’s 2.67X. This indicates that the stock is relatively more expensive compared to its industry peers.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Strong Demand for Identity Solutions Aid OKTA’s Prospects
The rising number of security breaches globally highlights the critical role of cybersecurity providers like OKTA. According to IDC’s latest data, global security product revenues reached $106.8 billion in 2023, representing a 15.6% increase from 2022. Microsoft MSFT led with an 11.6% market share, followed by Palo Alto Networks PANW at 5%.
Cloud Native Application Protection Platforms saw the highest growth at 31.5%, while Identity and Access Management (IAM) grew 21.4%.
IDC forecasts double-digit growth for the security market, with revenues reaching $200 billion by 2028, driven by strong IAM segment expansion.
Okta’s strong portfolio is helping it win market share in the cybersecurity domain against the likes of Microsoft, IBM and CyberArk Software CYBR. It recently introduced new Customer Identity Cloud products tailored for GenAI applications, offering secure standards and a seamless developer experience. Its new Workforce Identity Cloud addresses challenges like SaaS governance risks and identity verification.
Okta has also been benefiting from an expanding partner base. Collaborating with OpenID Foundation, alongside partners like Microsoft, SGNL and Ping Identity, Okta is co-developing Interoperability Profile for Secure Identity in the Enterprise, a new security standard for SaaS companies.
OKTA’s strategic partnership with NetHope is aimed at improving cybersecurity across the nonprofit sector. It also includes a $2.5 million commitment to support a safer digital ecosystem and strengthen nonprofits’ security worldwide.
Conclusion
Okta’s robust portfolio is helping it expand its clientele. It benefits from positive industry trends, including growing demand for identity solutions. Its Growth Score of A makes the stock attractive for long-term investors.
However, stretched valuation, along with a challenging macroeconomic condition, is a headwind for investors.
OKTA currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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