Okta Delivers Record Q1 Profitability

Okta (NASDAQ:OKTA) reported its fiscal 2026 first-quarter earnings on May 27, 2025, delivering 12% year-over-year total revenue growth, record profitability, and strong cash flow. Management introduced suite-based pricing, announced accelerating product innovation in both human and nonhuman identity, and issued full-year fiscal 2026 guidance for 9%-10% revenue growth, a 25% adjusted operating margin, and a 27% free cash flow margin.

The call highlighted momentum with large enterprises, U.S. public sector wins, and new products, while also embedding increased macro and go-to-market conservatism into forward guidance.

Record Profitability Amid Strategic Go-To-Market Realignment

Okta restructured its salesforce in Q1 by further specializing teams into dedicated Okta and Auth0 sellers, building upon prior successful specialization initiatives in the U.S. small- and medium-sized businesses (SMB) and public sector verticals. Results included strong new business performance and large public sector wins. However, management cited anticipated near-term uncertainty in federal contracts due to one-year mandates and a dynamic macroeconomic environment.

"The strength has been a direct result of Okta's strategic commitment and investments in the U.S. public sector. Our public sector team had a strong Q1 as two of our top three and four of our top 10 deals were in the public sector, including the federal deal we called out our posted commentary. Clearly, there is a lot going on in the U.S. federal vertical, and we are monitoring the developing situation closely. While we anticipate some near-term uncertainty in our federal business, we remain highly confident in the long-term public sector opportunity. That's because Okta delivers the efficiency and security benefits that government agencies require and our FedRAMP high and IL four certifications distinguish Okta from the field."
-- Brett Tighe, Chief Financial Officer

Sustained strength in large enterprise and public sector verticals demonstrates platform relevance, but single-year federal contract structures and prevailing macro caution signal ongoing guidance prudence and exposure to headline-driven variability in bookings.

Nonhuman Identity Innovation and Accelerating Product Expansion

Workflow executions increased nearly 400% over the past three years, reaching nearly 40 billion in March. The Okta Identity Governance (OIG) suite and tools for managing nonhuman identities (NHIs) such as service accounts and machine tokens gained traction, with partners reporting OIG readiness for mainstream adoption. The company leveraged its annual Showcase event to announce Okta Zero initiatives and a developer preview of Auth0 for generative artificial intelligence (AI) to secure AI agent workflows, with broad, integrated offerings positioned as a differentiator against fragmented competitors.

"In fact, last year, only 15% of organizations said they are confident in their ability to secure NHIs. Okta addresses this problem with identity security posture management, and Okta privilege access. By combining these two products, customers can discover, secure, and manage NHIs with an end-to-end secure identity fabric to secure both human identities and NHIs across a single system. This integrated approach protects nonfederated and privileged identities ensuring AI-driven automation and machine-to-machine interactions remain governed under zero trust policies while continuously monitoring and HI risks and vulnerabilities across the enterprise."
-- Todd McKinnon, Chief Executive Officer and Cofounder

Okta’s unique capability to govern both human and machine identities at scale responds to the rapid operationalization of AI, positioning the firm as an indispensable partner for security-conscious enterprises as agent-driven automation accelerates.

Suite-Based Pricing Adoption Drives Cross-Sell and Platform Consolidation

The company launched suite-based ("good, better, best") pricing for the Okta platform, in response to customer demand for consolidation and the ability to bundle a broad portfolio of governance, privileged access, and threat protection offerings; the largest deal in Q4 FY2025 was a workforce suite bundle, while there was growing penetration of these packages. Okta emphasized its unique status as an independent, neutral identity provider with more than 8,000 integrations, offering customers flexibility in cloud, collaboration, and security environments without vendor lock-in.

"We have what we call suite-based pricing. ... Q1 is the first quarter of that. ... We're seeing positive results there with people wanting to buy multiple products. ... We're the only independent neutral identity platform that has this broad array of products across governance, privileged, threat protection, device access, access management. ... customers are picking the strategic points of consolidation. ... our pitch to them, which is resonating, which is you should consolidate around identity, and make sure it's independent neutral, but you can take costs out of the business. ... You're not going to be locked into a certain ecosystem, a certain cloud environment, a certain collaboration environment. Even a certain set of security tools. ... [O]ur suite-based pricing ... was the motivation behind that."
-- Todd McKinnon, Chief Executive Officer and Cofounder

Emphasis on bundled solutions catalyzes multi-product adoption, enhances competitive differentiation, and supports durable account expansion. This underpins its margin leverage and fortifies Okta’s position as a leading enterprise identity platform.

Looking Ahead

Guidance for fiscal 2026's second quarter calls for 10% revenue growth, 10%-11% current remaining performance obligations (CRPO) growth, a 26% adjusted operating margin, and a 19% free cash flow margin. Full-year fiscal 2026 guidance expects 9%-10% revenue growth, a 25% adjusted operating margin, and a 27% free cash flow margin. While there was no observable macro-driven softness, management has incorporated additional economic prudence and ongoing go-to-market specialization transition into its forward outlook. Seat headwinds are expected to persist through the first half of FY2026, and product innovation -- especially in governance and AI security -- should drive incremental opportunity.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Okta. The Motley Fool has a disclosure policy.