Okta raises FY27 guidance on Q2 beat, analysts boost targets to $200
- Okta raised FY27 adjusted EPS guidance to $3.90-$3.94 and revenue to $3.216-$3.226 billion
- Shares rose ~26% to $169.17 as analysts boosted price targets to $185-$200
- Q2 adjusted EPS of $1.05 beat consensus of $0.97; revenue grew 11% YoY to $805 million
- Current RPO grew 14% YoY to $2.585 billion, driven by large enterprise deals
- Emerging products contributed 30% of bookings, including dozens of AI agent deals
*this image is generated using AI for illustrative purposes only.
Okta Inc (NASDAQ: OKTA) shares rallied approximately 25.85% to $169.17 on Thursday after the company reported a strong second-quarter earnings beat and raised its fiscal year 2027 guidance. The upgrade triggered a wave of analyst optimism, with several firms raising their price targets to between $185 and $200.
The company lifted its full-year adjusted EPS outlook to $3.90–$3.94 from $3.79–$3.87, beating the consensus estimate of $3.84. Revenue guidance was increased to $3.216 billion–$3.226 billion, surpassing the prior range of $3.185 billion–$3.205 billion and the consensus estimate of $3.200 billion.
Analyst Reactions
Multiple analysts raised their price targets on Okta stock following the earnings beat:
- Needham: Mike Cikos maintained a Buy rating, raising the target from $140 to $200.
- Cantor Fitzgerald: Jonathan Ruykhaver maintained an Overweight rating, raising the target from $170 to $200.
- Evercore ISI Group: Peter Levine maintained an Outperform rating, raising the target from $130 to $185.
- KeyBanc: Eric Heath maintained an Overweight rating, raising the target from $180 to $190. He noted that current remaining performance obligation (cRPO) grew 14% year-on-year to $2.585 billion, exceeding consensus of $2.509 billion.
- Truist Securities: Junaid Siddiqui reiterated a Buy rating, raising the target from $165 to $200.
- DA Davidson: Rudy Kessinger maintained a Buy rating, raising the target from $165 to $190.
- Morgan Stanley: Simeon Gutman maintained an Overweight rating, raising the target from $180 to $200.
- Guggenheim: John Difucci maintained a Buy rating, raising the target from $162 to $188. He highlighted that new annual contract value (ACV) grew more than 50% despite difficult comparisons.
Financial Performance
Okta reported Q2 adjusted EPS of $1.05, exceeding the consensus of $0.97 by 8.25%. Total revenue grew 11% year-over-year to $805 million, beating the expected $795.12 million. Subscription revenue, the core business line, increased 12% to $793 million, driven by accelerating annual contract value in workforce and customer identity segments.
| Metric | Q2 FY27 | Q2 FY26 | Change |
|---|---|---|---|
| Total Revenue | $805 million | $728 million | +11% |
| Subscription Revenue | $793 million | $711 million | +12% |
| GAAP Operating Income | $107 million | $41 million | +161% |
| Non-GAAP Operating Income | $226 million | $202 million | +12% |
| Free Cash Flow | $227 million | $162 million | +40% |
Operating cash flow reached $234 million, while free cash flow hit $227 million, expanding the margin to 28% from 22% in the prior year quarter. Non-GAAP operating income stood at $226 million, or 28% of total revenue, maintaining flat margins compared to the previous year.
AI Deals and Partnerships
Okta secured dozens of AI-related deals during the quarter, including a multimillion-dollar agreement with a Fortune 50 health care company for a unified platform to discover, secure, and govern human, nonhuman, and AI agent identities. The number of customers with more than $1 million in annual contract value rose more than 20%, bringing the total to over 600 such customers. KeyBanc noted that large enterprises with average contract value over $1 million grew 22% year-on-year.
The company expanded partnerships with Anthropic, AWS, Cisco, OpenAI, Databricks and Snowflake. It added more than 25 Cross App Access integrations. Anthropic named Okta the first identity provider to support Enterprise Managed Auth for Model Context Protocol connectors, allowing companies to centrally manage Claude’s access to enterprise applications.
CEO Todd McKinnon said AI agent security could eventually become the cybersecurity industry’s biggest category. However, he cautioned that the opportunity remains in its early stages and is still too small to materially affect Okta’s results. Channel partners participated in all 20 of Okta’s largest second-quarter deals, including the company’s biggest partner-sourced deal. Emerging products contributed 30% of bookings.
Backlog and Balance Sheet
Remaining performance obligations (RPO) grew 17% year-over-year to $4.858 billion, indicating robust future revenue visibility. Current RPO, representing backlog recognized within 12 months, increased 14% to $2.585 billion.
As of July 31, 2026, Okta held $2.299 billion in cash, cash equivalents, and short-term investments. The company settled the remaining principal of its 2026 Notes for $350 million during the quarter. It also repurchased 1.5 million shares for $125 million, leaving $555 million under its $1 billion authorization.
What the Numbers Show
The divergence between GAAP and non-GAAP profitability highlights the significant impact of non-cash expenses on reported earnings. While GAAP operating income more than doubled to $107 million, non-GAAP operating income grew more modestly to $226 million. Stock-based compensation expense totaled $114 million for the quarter, representing a substantial portion of the difference between the two metrics and underscoring the capital-intensive nature of the company's compensation structure relative to its current revenue base.
Outlook
For Q3 FY27, Okta expects total revenue between $813 million and $817 million, implying 10% year-over-year growth. Guggenheim noted this implies virtually no new ACV is signed in the quarter, which is highly unlikely. Non-GAAP operating income is projected at $196 million to $200 million, yielding a margin of 24% to 25%. Current remaining performance obligation growth is expected at 11% to 12%, with a free cash flow margin of 21% to 23%.
Full-year fiscal 2027 guidance includes total revenue of $3.216 billion to $3.226 billion, reflecting 10% to 11% growth. This outlook incorporates an approximately one percentage point headwind from accelerating the shift of professional services business to partners. Non-GAAP free cash flow for the full year is expected to be between $910 million and $930 million, with a similar impact from lower interest income.
How might the acceleration of professional services revenue to channel partners impact Okta's gross margins and customer retention rates in subsequent quarters?
Given that AI agent security is currently a small contributor to results, what specific milestones or adoption metrics would signal that this segment is becoming a material driver of Okta's growth?
With stock-based compensation remaining high at $114 million, how likely is it that Okta will reduce its reliance on equity incentives as it approaches sustained GAAP profitability?
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