Okta Posts 13% Revenue Gain in Q2

Key Points

• Revenue reached $728 million, up 13% year-over-year, while adjusted EPS rose to $0.91.

• Operating and free cash flow surged, with free cash flow up more than 100% to $162 million compared to Q2 FY2025.

• Growth guidance for the next quarter and full year was cautious, with projected revenue growth of 9%–10% for FY2026.

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Okta (NASDAQ:OKTA), an identity and access management software company, reported fiscal 2026 second-quarter results on Aug. 26, 2025, that showed robust profitability and cash flow. It posted revenue of $728 million, which was up 13% year over year. Adjusted earnings per share (EPS) climbed to $0.91 versus the year-ago quarter's $0.72, while free cash flow soared to $162 million, up over 100% year over year. On the downside, guidance for the upcoming quarter and fiscal year signals management's heightened caution.

The period showed disciplined cost control and margin improvement but continued a trend of slowing topline growth, with sequential bookings and current remaining performance obligations (cRPO) growth showing signs of plateauing.

Source: Okta. Note: The fiscal 2026 second quarter ended July 31, 2025.

Understanding Okta’s Business and Key Success Factors

Okta provides cloud-based identity and access management software. Its technology allows organizations to control secure logins, user identities, and access privileges across both internal and external applications. This is especially important as more businesses move to cloud computing and remote work, making security and scalability essential.

In recent years, Okta's main areas of focus have been platform reliability, security certifications, and innovation in products related to identity management and threat protection. Key factors for its success include continuous investment in research and development, as shown by steady GAAP R&D spending of $160 million, a growing customer base in both enterprise and public sector segments, and an extensive network of over 7,000 integrations. Okta leverages its “land-and-expand” sales model -- adding new customers and then increasing revenue from them over time through new products and services.

Quarter Highlights: Financial, Product, and Customer Perspectives

Profitability stood out, with operating income rising to $202 million, an increase of 36.5% compared to Q2 FY2025. Adjusted operating margin climbed five percentage points to 28%, reflecting stronger cost discipline, while adjusted net income reached $169 million. Free cash flow margin expanded to 22%, up 10 percentage points year over year. The gains were underpinned by flat R&D expenses and only modest growth in sales and marketing costs, even as revenue grew 13% year over year.

The revenue jump was driven primarily by subscription-based products. Subscription revenue has been Okta’s main growth engine, totaling $711 million, up 12%. Professional services and other revenue, at $17 million, was a smaller but faster-growing contributor (up 21% compared to Q2 FY2025). The period saw accounts receivable decline, which signals stronger cash collections. However, growth in key forward metrics, such as current remaining performance obligations (cRPO, which measures committed revenue to be recognized over the next 12 months), plateaued, up only 1.7% compared to Q1 FY2026 and 13% year over year.

From a product perspective, Okta’s portfolio includes user authentication platforms, multi-factor authentication apps, and developer tools for building secure sign-in experiences (highlighted by the Auth0 platform). Management noted continued adoption of new offerings for identity governance, privileged access management, and automated threat detection. Okta also continues to invest in products that use artificial intelligence (AI), such as its Auth for GenAI, aiming to support organizations as they integrate AI-powered tools into their operations. The company stated, “Our solid Q2 results are highlighted by continued strength in new product adoption, the public sector, Auth0, and cash flow.”

Okta’s customer mix includes large corporations, mid-sized organizations, and public sector entities. While customer count and segment mix were not newly disclosed this quarter, previous disclosures listed over 19,650 customers with more than 4,800 spending at least $100,000 per year. Okta continues to win government business, supported by federal certifications like FedRAMP and IL4, and emphasized momentum in the public sector and large enterprise deals. Historically, International markets accounted for over 21% of total revenue in FY2025, though the company did not break this out in detail.

Outlook and What to Watch

Looking ahead, management guided for revenue of $728 million to $730 million, which translates to growth of 9%–10% for FY2026, and reflects ongoing caution. Management said back on the first quarter earnings conference call, “There is definitely some prudence around the federal vertical, right, although it's not a huge part of our business. You guys all know it does renew itself every year because of the one-year contract mandates that the U.S. federal government has. So that would be a kind of like a subset of the total macro, but in general, it's across the board. If you've heard us talk about over the last couple of years about the headwinds that we faced in terms of NRR, I don't think that those headwinds would be any different than what we would expect to see if the macro did turn negative as we go through the full fiscal year.”

Current remaining performance obligations are forecast to grow 10% year over year, further reinforcing the company’s expectation for the coming year. Adjusted operating income is expected to dip slightly from this quarter’s high, coming in at $160 million to $162 million, while adjusted free cash flow margin is targeted at roughly 21%.

For the full fiscal year 2026, Okta raised its guidance slightly, now targeting revenue of $2.885 billion at the high end, reflecting 10%–11% growth for FY2026. Management made it clear that guidance for growth was delivered “prudently” due to changes in go-to-market structure and lingering uncertainty from customer spending plans, especially among large government clients. Investors should closely watch the company’s performance for indicators of re-acceleration.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Okta. The Motley Fool has a disclosure policy.