OKTA Q3 Deep Dive: New Product Adoption and AI Security Drive Strategic Shifts

Barchart·12/03/2025 04:40:18

Identity management company Okta (NASDAQ:OKTA) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 11.6% year on year to $742 million. Guidance for next quarter’s revenue was better than expected at $749 million at the midpoint, 1.6% above analysts’ estimates. Its non-GAAP profit of $0.82 per share was 8.4% above analysts’ consensus estimates.

Is now the time to buy OKTA? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Okta’s third quarter results were shaped by strong customer demand for its expanding identity management portfolio, especially among large enterprises. Management credited the outperformance to robust adoption of new products, such as Okta Identity Governance and AI-focused security solutions, which address increasingly complex identity needs. CEO Todd McKinnon highlighted that, “Customers frustrated managing dozens of disparate identity systems are turning to Okta for a modern, unified platform.” However, the negative market reaction reflected concerns about the sustainability of these recent gains, as some partners and customers remain cautious about consolidating identity solutions amid evolving enterprise IT priorities.

Looking ahead, Okta’s guidance is supported by the anticipated momentum in its AI security offerings and continued sales productivity improvements. Management expects expanded use cases for agent-based identity security to become a key growth driver, with McKinnon emphasizing, “Okta is positioned as the identity layer for AI agents.” The company is focused on scaling its workforce and channel partnerships to capture demand from both large enterprises and developers building AI-powered applications. While Okta’s leadership sees opportunity in the shift to agentic commerce and broader adoption of its unified platform, CFO Brett Tighe cautioned that the outlook remains contingent on the successful execution during the company’s seasonally largest quarter.

Key Insights from Management’s Remarks

Management attributed Q3 performance to accelerated adoption of new AI security products, increased sales specialization, and momentum in large enterprise deals.

• AI security product traction: A surge in customer interest for Okta's agentic identity solutions was driven by organizations seeking to secure AI agents—a new category of digital identity. Over 100 current customers engaged on this topic, representing more than $200 million in annual recurring revenue (ARR).
• Enterprise consolidation trend: Large customers are consolidating multiple legacy identity providers onto Okta’s platform to address both cost and functionality gaps. This shift is motivated by the need to manage thousands of applications and to prepare for a future where AI agents require fine-grained access controls.
• Sales specialization impact: The realignment of sales teams by buyer persona and product suite has led to improved sales productivity and lower attrition among account executives. Management noted that the average tenure is at a multi-year high, supporting more effective go-to-market execution.
• Product suite expansion: New offerings like Okta Identity Governance, Privileged Access, and Auth0 for AI Agents are enabling upsell opportunities and attracting customers who want a single control plane for both human and nonhuman identities.
• Channel partner momentum: Okta experienced a strong quarter in its partner channel, with many large deals involving system integrators, reflecting an increased focus on leveraging third-party relationships to extend market reach.

Drivers of Future Performance

Management expects AI-driven identity security, specialized sales execution, and product innovation to shape Okta’s performance in the coming quarters.

• Securing AI agents: The launch of Auth0 for AI Agents and related products is expected to drive new revenue streams as enterprises prioritize securing nonhuman identities. Okta believes this emerging market could eventually be larger than its traditional workforce and customer identity businesses, but adoption is still in the early stages.
• Sales capacity expansion: Okta is methodically increasing its salesforce and channel capacity to meet growing demand, especially in large enterprise and public sector segments. Management is focused on maintaining high productivity and low attrition while scaling operations.
• Customer consolidation and upsell: The trend of replacing multiple legacy identity solutions with Okta’s unified platform supports higher average contract values and cross-sell opportunities. However, management acknowledges that broader economic and technology adoption cycles could impact the timing and pace of these conversions.

Catalysts in Upcoming Quarters

In the quarters ahead, our team will be watching (1) the pace at which enterprises adopt Okta’s AI agent security solutions and the corresponding growth in agent-based revenue, (2) sustained improvements in salesforce productivity and retention following the recent specialization, and (3) whether large customers continue consolidating legacy systems onto Okta’s platform. The effectiveness of new product launches and traction in the public sector will also be important indicators of execution.

Okta currently trades at $78.78, down from $82.27 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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