Okta Surges 20% Pre-Market as Q2 Results Beat Estimates, Raises Full-Year Guidance for Second Time This Year

TradingKey - On August 27 US Eastern Time, cybersecurity firm Okta (OKTA) jumped more than 20% at one point in pre-market trading. As of press time, Okta's pre-market stock was up 18.37% at $159.11. The company reported its second-quarter fiscal 2027 financial results after the market close on August 26, exceeding market expectations across multiple core metrics and raising its full-year revenue guidance for the second time this year.

[Source: TradingView]

According to the financial report, Okta generated revenue of $805 million in the second quarter, a year-over-year increase of 11%, exceeding the market expectation of $793 million. Among this, subscription revenue was $793 million, up 12% year-over-year.

GAAP net income for the quarter came in at $116 million, or $0.65 per share, up 73% from $67 million, or $0.37 per share, in the same period last year. Adjusted earnings per share were $1.05, topping market expectations of $0.97.

Market concerns had previously centered on Okta's growth slowing to single digits, but the company raised its full-year revenue growth forecast to 10%-11% from the previous 9%-10%, an outlook that surpassed consensus analyst expectations. Year-to-date, Okta shares have gained about 54%.

AI Agent Identity Security Becomes Growth Highlight as RPO Hits Record High

The most notable highlight this quarter was the growth of the AI security business. The company opened its "Okta for AI Agents" tool to all customers, driving bookings for its "new product lineup" including the tool to account for 30% of total orders and boosting the average annual contract value (ACV) of related deals by about 40%.

Although management noted that the AI business currently makes a small absolute contribution to revenue, the company has signed dozens of AI-related security deals, including a multi-million-dollar contract in the healthcare sector.

CEO Todd McKinnon noted on the earnings call that while the AI agent security market remains in its early stages, recent high-profile security incidents are accelerating market demand.

He predicted that in five to 10 years, identity security will replace network-layer security as the largest segment in cybersecurity. Currently, driven by the urgency of AI transformation, sequential growth accelerated across both of Okta's core platforms—workforce identity and customer identity—with the core underlying business continuing to strengthen.

RPO data further confirmed this growth momentum. Remaining performance obligations (RPO) for the quarter grew 17% year-over-year to $4.858 billion, topping analysts' expectations of $4.7 billion. Of that total, current RPO (cRPO), expected to be recognized over the next 12 months, reached $2.585 billion, up 14% year-over-year and also beating analysts' estimates of $2.51 billion.

Strong RPO growth points to enhanced visibility into the company's future revenue. Amid intense competition in the identity security market, predictable revenue streams help mitigate operational uncertainty.

Competitive Pressures and Growth Prospects

Behind Okta's impressive performance, two issues still merit attention.

First is the competitive pressure from Microsoft's (MSFT) product bundling. Microsoft can offer Entra ID to Microsoft 365 and Azure customers, which was previously viewed as Okta's primary competitive threat. However, Okta supports multi-cloud and multi-application environments, and this neutral positioning is its main advantage over Microsoft.

Second is the scale of its AI security business. Management acknowledged that AI-related revenue is expected to remain immaterial in fiscal 2027, and new products have yet to make a substantial contribution to current-period RPO. However, new products already account for 30% of new bookings, indicating that customer willingness to pay is taking shape.

Raises Full-Year Guidance

Based on strong performance, Okta raised its full-year revenue guidance for fiscal year 2027 for the second time this year. Full-year revenue is expected to be between $3.216 billion and $3.226 billion, with adjusted earnings per share between $3.90 and $3.94. Third-quarter revenue is projected to be between $813 million and $817 million, with adjusted earnings per share expected to be $0.92 to $0.94.

In terms of operating efficiency, Okta's operating cash flow for the quarter reached $234 million, accounting for 29% of revenue, while free cash flow stood at $227 million, representing 28% of revenue, both showing significant improvements from the same period last year.