Okta (OKTA -1.66%) shares were trading higher after the cybersecurity company reported solid fiscal third-quarter results and increased its guidance. However, the stock still finds itself lower on the year, down about 5% as of this writing.
Revenue growth has been decelerating for the company, which has seen growth slow following a cybersecurity incident last year when hackers were able to steal data from customers who use its support system.
Let's take a closer look at Okta's most recent results to see if 2025 can shape up to be a better year for the stock.
A solid quarter and increased guidance
Okta's overall revenue rose 14% year over year in the third quarter to $665 million, which easily topped its earlier $648 million to $650 million forecast. However, it was a continued deceleration from the 19% revenue growth it saw in Q1 and the 16% growth it saw in Q2. Subscription revenue also increased by 14% to $651 million.
Adjusted earnings per share (EPS) jumped to $0.67 from $0.44 a year ago. The company had previously forecast adjusted EPS to be between $0.57 and $0.58.
Okta's net dollar retention rate, which is how much revenue came from existing customers over the prior year, was 108%. Similar to revenue, this number has also been moving lower -- from 115% a year ago and 110% last quarter. The company that said organizations being cautious with spending have impacted "seats" (or single user licenses) for its workforce identity business and MAUs (monthly average users) for its customer identity business. This in turn has led to pressure in its net dollar retention rate, which is amount of money existing customers spend with the company minus churn. However, it has said gross retention, which is just revenue retained from existing customers, remains strong, and that it has been doing a good job of selling newer solutions to existing and new customers. In other words, its existing customers aren't hiring a lot of new employees, so it's not seeing a big revenue uplift.
Image source: Getty Images
The company added about 150 new customers in the quarter, ending with 19,450 in total, up nearly 11% year over year. Customers with annual contract values (ACVs) over $100,000 rose to 4,705, up 8% year over year.
Okta's remaining performance obligation (RPO) backlog climbed by 19% to $3.66 billion, while its current RPO (cRPO) backlog, which is subscription backlog expected to be recognized over the next 12 months, rose by 13% to nearly $2.1 billion. Both metrics are based on signed contracts, and are an indication of future revenue. Its RPO backlog growth has been accelerating this year, while cRPO backlog growth was the same as Q2.
Looking ahead, Okta increased its full-year forecast. It now expects revenue of between $2.595 billion to $2.597 billion, representing growth of around 15% at the midpoint. It projected adjusted EPS to be between $2.75 to $2.76. The chart below looks at Okta's revenue guidance changes.
| 2024 Full-Year Guidance | February | May |
August |
Current |
|---|---|---|---|---|
| Revenue (in billions) | $2.495 to $2.505 | $2.53 to $2.54 | $2.555 and $2.565 | $2.595 to $2.597 |
| Revenue growth | 10% to 11% | 12% | 13% | 15% |
| Adjusted EPS | $2.24 to $2.29 | $2.35 to $2.40 | $2.58 to $2.63 | $2.75 to $2.76 |
Data source: Okta earnings releases.
For its fiscal Q4, Okta has forecast revenue to rise between 10% to 11% to a range of $667 million to $669 million. It is looking for adjusted EPS of between $0.73 to $0.74. It sees its Q4 cRPO rising 9% to between $2.130 billion to $2.135 billion.
Looking toward fiscal 2026, the company projects revenue of between $2.77 billion to $2.78 billion, which is growth of about only 7%. It also said its guidance no longer includes conservatism related to the 2023 security incident as it thinks its effects are fully behind it.
Is now a good time to buy the stock?
With a forward price-to-sales (P/S) ratio of about 5, Okta trades at one of the lower valuations in the cybersecurity space.
OKTA PS Ratio (Forward 1y) data by YCharts
However, while the company has been conservative with guidance, it is looking for revenue to continue to decelerate into next year as well. The company said it is seeing momentum in its business and with new product offerings, but that does not seem to mesh with the preliminary forecast it just provided.
The problem for Okta going forward is that the cybersecurity industry tends to draw in growth investors, and sub-10% revenue growth will likely not attract these investors. While that 7% growth is likely to turn into 10% to 12% growth based on how last year played out versus guidance, it still might not be enough to get investors excited.
As such, I think there are better options in the cybersecurity space at the moment, and despite its low valuation, I wouldn't be scooping up the stock here.
