Q3 2025 Earnings Summary
- Strong execution in Q3 with significant deals: Okta had a very solid Q3, with strong execution in bringing deals across the line. Large deals were closed, including a nearly $5 million ARR deal with one of the largest technology companies in North America, as part of a multi-phase project to replace their identity across the whole company. All top 10 deals in the quarter involved partner participation, demonstrating the effectiveness of their partner ecosystem. , ,
- Growth of new products contributing to bookings: New products accounted for approximately 15% of bookings in Q3, showing that Okta's expanded product portfolio is resonating with customers. Okta Identity Governance now represents about 30% of the contract value when sold in a workforce deal, and Okta Privileged Access is gaining momentum, contributing to larger deals and cross-sell opportunities. ,
- Strategic focus on go-to-market specialization and productivity: Okta is implementing go-to-market specialization to unlock more growth by increasing account executive productivity. By specializing sales reps to specific products, such as dedicated Auth0 and Okta reps, the company expects to drive better sales performance while maintaining healthy profitability, positioning it for accelerated growth in FY '25 and FY '26. ,
- Slowing Growth and Conservative Guidance: Okta's revenue growth guidance for FY'26 is approximately 7% , which is significantly lower than previous years and may indicate slowing growth momentum. Furthermore, the guidance already includes contributions from new products like Okta Identity Governance, suggesting limited upside potential from these offerings.
- Potential Market Share Loss: The identity market for both Workforce and Customer Identity Management is growing faster than 5%. With Okta's projected growth of 7%, which is close to this rate, there is concern that Okta may not be keeping pace with overall market growth, potentially leading to market share loss.
- Increased Costs and Pressure on Margins Due to Sales Specialization: Okta plans to invest in go-to-market specialization, including adding dedicated sales teams for different products. While this strategy aims to drive growth, it may lead to increased costs and put pressure on operating margins in the short term. Executives acknowledged potential increases in costs but believe growth will outweigh them, presenting a potential risk to profitability targets.
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Revenue Guidance and Growth Expectations
Q: How should we view your approach to revenue guidance for next year?
A: Management acknowledged that last year, due to a security incident, they guided 10% revenue growth for FY '25 but now expect 15% growth. They cautioned not to expect a similar level of delta in future guidance as the security incident impact is now removed. -
Bookings from New Products
Q: How significant are bookings from new products compared to history?
A: New products accounted for 15% of bookings, higher than in the past, led by identity governance. Multiple new products are contributing, indicating exciting growth prospects. -
Net Retention Rate Outlook
Q: When will emerging products offset pressures on net retention rates?
A: Net retention is impacted by scrutiny on licenses and MAUs. While emerging products are growing, management expects net retention rates to tick down slightly in Q4 and will provide more insights for FY '26 after finalizing plans. -
FTC Investigation into Microsoft's Bundling
Q: Any comments on the FTC's investigation into Microsoft's security bundling?
A: Okta emphasizes the risks of vendor lock-in with Microsoft's bundling. They highlight the importance of an independent identity platform, noting that 8 out of 10 security breaches are due to compromised identity, and customers benefit from flexibility and better security outcomes with Okta. -
Go-to-Market Specialization Initiative
Q: Why are you focusing on go-to-market specialization now?
A: To accelerate growth, Okta is moving towards more specialized sales roles. Dedicated reps for different products will enhance productivity, despite potential short-term costs, and help maximize growth and profitability. -
Execution and Growth Outlook
Q: What drove the strong performance in Q3 versus Q2?
A: Q3 saw improved execution, with deals closing and new products contributing 15% of bookings. The year is more back-end loaded, making Q4 important. Management remains optimistic about growth opportunities. -
Pressure on Seats and MAUs
Q: How do seat and MAU pressures affect visibility into next year?
A: The pressures are fully accounted for in the guidance. License scrutiny continues, but the impact from older customer cohorts is expected to abate by the end of the first half of FY '26. -
Growth in Public Sector and Large Deals
Q: Can you elaborate on success in the public sector and with large deals?
A: Okta achieved significant wins, with half of the top ten deals in the U.S. federal sector. Notably, they secured a nearly $5 million ARR deal with a large North American tech company , reflecting strong performance in public sector and large deals. -
Customer Identity Business Performance
Q: How did the Customer Identity business perform this quarter?
A: The Customer Identity segment is now an over $1 billion business, showing strong growth. Drivers include customer experience improvements, such as consolidating multiple logins for a European online retailer. -
Competitive Landscape in Governance
Q: How is Okta succeeding in the governance market?
A: Okta's governance product excels in areas without existing solutions, particularly for SaaS applications. Its quick implementation and integration provide fast value, which is resonating in the market.