Okta, Inc. (NASDAQ: OKTA)

Okta's Q1 FY2026 financial performance represents a significant inflection point, with the company achieving profitability for the first time in recent quarters. Total revenue grew a robust 12% year-over-year to $688 million, primarily driven by subscription revenue which increased 12% to $673 million. This growth demonstrates the continued strength of Okta's identity and access management platform despite challenging macroeconomic conditions.

The return to profitability with $62 million in net income compared to a $40 million loss in the prior year highlights the company's successful execution of operational efficiency initiatives. Operating income improved dramatically to $39 million from an operating loss of $47 million, representing an $86 million improvement year-over-year. This turnaround was achieved through disciplined expense management while continuing to invest in growth initiatives.

Gross profit increased to $533 million with an improved gross margin of 77% compared to 76% in the prior year. The subscription gross margin expanded to 80% from 78%, reflecting improved operational efficiency in delivering Okta's cloud-based identity solutions. This margin expansion demonstrates the scalability of Okta's SaaS business model.

Diluted earnings per share turned positive at $0.35 compared to a loss of $0.24 per share in Q1 FY2025. The company's strong cash flow generation and improved profitability position it well for continued investment in product development and market expansion while maintaining financial discipline.

Subscription Revenue continues to be the dominant revenue driver, representing 98% of total revenue at $673 million. This 12% year-over-year growth reflects strong demand for Okta's identity and access management solutions, driven by both new customer acquisition and expansion within existing accounts. The subscription model provides predictable, recurring revenue that supports long-term growth planning.

Professional services revenue grew 8% to $15 million, supporting customer implementation and optimization of Okta's platforms. While representing only 2% of total revenue, these services are crucial for customer success and satisfaction, ultimately driving subscription renewals and expansions.

Enterprise Customer Growth: The number of customers with annual contract value (ACV) above $100,000 grew 7% to 4,870 customers, demonstrating Okta's continued success in the enterprise market. This metric indicates strong adoption among larger organizations that value Okta's comprehensive identity solutions and are willing to make significant investments in identity infrastructure.

However, the Dollar-Based Net Retention Rate decreased to 106% from 111% in the prior year, reflecting the impact of macroeconomic headwinds on customer expansion activities. While still above 100%, indicating net customer growth, the decline suggests some customers are moderating their expansion plans in the current economic environment.

Remaining Performance Obligations (RPO) grew significantly to $4.08 billion, up 21% year-over-year, with current RPO of $2.23 billion representing contracted revenue expected to be recognized over the next 12 months. This strong RPO growth provides visibility into future revenue and demonstrates the health of Okta's sales pipeline.

Okta demonstrated excellent operational discipline in Q1 FY2026, with total operating expenses decreasing 4% to $494 million while revenue grew 12%. This expense efficiency was a key driver of the company's return to profitability and represents successful execution of cost optimization initiatives.

Research & Development expenses decreased 6% to $154 million, primarily due to a $16 million reduction in stock-based compensation expense, partially offset by higher labor costs. As a percentage of revenue, R&D improved to 22% from 27% in the prior year, reflecting improved efficiency while maintaining investment in innovation.

Sales & Marketing expenses remained flat at $237 million year-over-year, demonstrating disciplined spending while continuing to invest in customer acquisition and market expansion. The company is further specializing its sales force to better align with customers and evolving market demands, which should drive improved productivity over time.

General & Administrative expenses decreased significantly by 11% to $103 million, driven by a $7 million reduction in stock-based compensation and the absence of legal settlement costs incurred in the prior year. This expense category improved to 15% of revenue from 19% in Q1 FY2025.

The overall improvement in operating leverage demonstrates Okta's ability to scale its business efficiently while maintaining investments in key growth areas. The company's focus on operational efficiency while preserving R&D investment supports its competitive position in the identity management market.

Okta maintains a strong financial position with excellent liquidity and minimal debt obligations:

• Cash and Investments: $2.73 billion in total liquidity, comprising $494 million in cash and cash equivalents and $2.23 billion in short-term investments
• Investment Portfolio: Primarily consists of U.S. treasury securities ($1.89 billion), corporate debt securities ($281 million), and certificates of deposit ($88 million)
• Deferred Revenue: $1.58 billion representing advance customer payments, providing strong working capital
• Convertible Notes: $858 million in total debt, with $509 million due in September 2025 and $349 million due in June 2026
• Operating Cash Flow: $241 million in Q1 FY2026, up from $219 million in the prior year

The company's strong cash position of $2.73 billion provides significant financial flexibility for strategic investments, acquisitions, and shareholder returns. Management has been actively repurchasing convertible notes, having bought back $42 million of the 2025 Notes and $258 million of the 2026 Notes during fiscal 2025.

Okta's robust balance sheet and cash flow generation capability position the company well to weather potential economic uncertainties while continuing to invest in growth opportunities. The minimal debt burden and strong liquidity provide a competitive advantage in pursuing strategic initiatives.

Okta continues to strengthen its position as the leading independent identity partner, with strategic initiatives focused on long-term growth:

Competitive Advantages

• Market Leadership: Leading independent identity platform with over 7,000 integrations in the Okta Integration Network
• Comprehensive Platform: Both Okta Platform and Auth0 Platform serving workforce and customer identity needs
• Enterprise Focus: Strong traction with large enterprises, evidenced by 4,870 customers with ACV >$100K
• Scalable Architecture: Cloud-native SaaS model enabling efficient scaling and high gross margins

Strategic Priorities

• Expanding sales and marketing capabilities with specialized go-to-market organization
• Continued investment in platform innovation and security enhancements
• International expansion to capture global identity management opportunity
• Partner ecosystem development to accelerate customer adoption
• Focus on customer success to drive retention and expansion

The identity and access management market continues to grow as organizations adopt Zero Trust security models and modernize their IT infrastructure. Okta's independent, vendor-neutral approach provides a competitive advantage over integrated solutions from larger technology vendors.