What They Do
Okta provides cloud-based identity and access management (IAM) solutions that help organizations securely manage who has access to their applications and data. Their customers range from mid-market companies to large enterprises and government agencies who need to authenticate users and control access across thousands of apps and systems. The company generates revenue through subscription-based software licenses, with a growing focus on AI security solutions.
Investment Thesis
**AI Security Leadership** — New AI agent products already represent 30% of Q4 bookings with 40% average contract uplift, positioning Okta at the forefront of the massive AI security opportunity**Strong Financial Foundation** — Consistent Rule of 40 performance since going public, 77% gross margins, and $2.5B+ cash enabling $1B share buyback program**Large Enterprise Momentum** — Annual contract value surpassed $3B milestone with record $1.3B in Q4 total contract value, demonstrating ability to land bigger dealsKey Risks
**Auth0 Growth Deceleration** — The Auth0 segment experienced slowdown due to tough comparisons and go-to-market transition costs, creating execution risk**Modest Revenue Growth** — 9% projected growth is relatively low for a SaaS company, suggesting market saturation or competitive pressure concernsGrowth Story
Okta is targeting 9% total revenue growth in FY27 ($3.5B by CY27), with subscription revenue growing faster than total revenue as they strategically shift professional services to partners. The company sees massive TAM expansion through AI agent security, calling it "the future of software," while their Identity Governance product already serves 2,000+ customers after just three years.
Profitability Profile
The company maintains strong profitability with 77% gross margins and is guiding for 25-26% non-GAAP operating margins in FY27, up from current levels. Free cash flow margins are projected at 27-28% for FY27, representing healthy cash generation despite a 1-point headwind from lower interest income due to capital allocation activities.
Competitive Position
Okta holds a leading position in the identity management market, competing against Microsoft Azure AD, Ping Identity, and others. Their competitive moat centers on their comprehensive platform approach, extensive app integrations, and early leadership in AI security—areas where they're positioning as the "default identity security solution" for federal and regulated industries.
Recent Momentum
Q4 FY26 delivered strong performance with consistent earnings beats (1.5% revenue beat, $0.05 EPS beat) and record contract metrics, though Auth0's deceleration created some concern. The market responded positively to the AI agent traction and $1B buyback announcement, with management emphasizing their "prudent approach" to guidance in current market conditions.
What Wall Street Thinks
Analysts appear cautiously optimistic given the consistent earnings beats over four consecutive quarters and strong AI positioning, though the modest 9% growth guidance likely tempers enthusiasm. The debate likely centers on whether AI security can meaningfully accelerate growth or if Okta is becoming a mature, slower-growth cash generator.
The Bottom Line
Okta is transitioning from a high-growth identity company to a profitable AI security leader, with early AI agent success suggesting potential for reaccelerated growth despite currently modest revenue projections.
