Okta (OKTA -1.66%), the identity management solutions provider, delivered robust financial results for its fiscal third quarter on Dec. 3. For the period, which ended Oct. 31, it reported $665 million in revenue, exceeding the analysts' consensus estimate of $649 million up marked from $584 million a year earlier. Notably, Okta achieved GAAP profitability with net income of $16 million, a substantial shift from the prior year's loss of $81 million. Despite concerns about customer expansion, the quarter's results reflect positive momentum with a focus on profitability and larger enterprise clients.
| Metric | Fiscal Q3 2025 | Fiscal Q3 2025 Analysts' Estimate | Fiscal Q3 2024 | % Change YOY |
|---|---|---|---|---|
| EPS (Non-GAAP) | $0.67 | $0.58 | $0.44 | 52% |
| Revenue | $665 million | $649 million | $584 million | 14% |
| Remaining performance obligations | $3.659 billion | - | $3.073 billion | 19% |
| Current remaining performance obligations | $2.062 billion | - | $1.826 billion | 13% |
| Free cash flow | $154 million | - | $150 million | 3% |
Source: Analysts' estimates provided by FactSet.
Business Overview and Focus
Okta provides identity management solutions through its Workforce and Customer Identity Clouds, enabling secure access across various platforms. Aiming to enhance digital security for its clients, Okta plays a key role in digital transformation initiatives. Its customer base surpasses 18,950 clients globally. Recently, its strategic direction has focused on expanding its client base among large enterprises and exploring public sector opportunities.
It leans on a "land and expand" sales model, tapping deeper into its established clients' pocketbooks through upselling and cross-selling. With increased focus on regulated sectors, these efforts target improved customer retention and expansion -- an essential tactic given its comprehensive integration capabilities with major platforms like Amazon Web Services and Microsoft Azure.
Quarterly Developments and Financial Performance
The highlight metric of the quarter was GAAP net income, where Okta delivered a significant turnaround: It posted a profit of $16 million, a substantial improvement from its loss of $81 million in the prior-year period. Non-GAAP net income was $121 million, up from $79 million in the prior-year period, as operating margin increased to 21% from 15%.
Another key area of focus for Okta was profitability. That was boosted by its 14% increase in subscription revenue. Its $154 million in free cash flow highlights its ability to generate capital while bolstering financial flexibility. Meanwhile, the company's remaining performance obligations (RPO) grew by 19% to $3.659 billion, indicating long-term commitments from clients.
However, some challenges persisted. The company's net customer additions were a modest 200 during the quarter. Management attributed that in part to the macroeconomic climate, which led businesses to be conservative about software spending. Slower growth in customer additions could impact Okta's revenue growth, a notable area for concern given the company's strategic emphasis on customer expansion.
Product innovations also remained high on Okta’s agenda, with R&D investments fueling advancements in identity governance solutions. The company also fostered several ecosystem partnerships, significantly contributing to substantial deal sizes, often exceeding those of direct sales.
Looking Ahead
Okta's management projects fiscal Q4 revenue of between $667 million and $669 million, which would equate to a growth rate of 10% to 11%. Non-GAAP operating income is expected to increase with an anticipated margin of 23%. These projections signal continued confidence despite the macroeconomic challenges, but investors should pay attention to its customer acquisition rates.
For the fiscal year, management boosted its revenue guidance slightly to a range of $2.595 billion to $2.597 billion, implying roughly 15% growth. Additionally, Okta aims to sustain a non-GAAP free cash flow margin of approximately 25%. Investors should keep an eye on Okta's diversification into larger accounts and regulated sectors, and how it navigates the current economic climate.
