What Happened?

Shares of identity management software maker Okta (OKTA) jumped 22.6% in the afternoon session after the company delivered a solid fourth quarter earnings, beating Wall Street's expectations on both revenue and operating profit. A standout metric was the 25% year-on-year growth in remaining performance obligations (RPO), which exceeded analysts' estimates, and implied solid future sales as customers lock in long-term commitments. 

Sales were up 13% from last year, with nearly all of it coming from subscriptions. Margins also improved meaningfully, driven by tight cost controls and stronger revenue. That helped earnings per share come in ahead of estimates, showing the company's ability to turn sales into profit. 

Looking ahead, full-year sales guidance topped Wall Street forecasts, though expected sales growth of 9-10% signals some slowdown compared to the previous year. Overall, this was a strong quarter.

The shares closed the day at $108.53, up 24.4% from previous close.

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What The Market Is Telling Us

Okta’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. Moves this big are rare for Okta and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 6 months ago when the stock dropped 18.6% on the news that the company reported weak second-quarter earnings results. Its current RPO (a leading indicator for future revenue) forecast for next quarter fell short of Wall Street's estimates, potentially signaling some softness. Management highlighted a challenging macro environment, which mostly impacted the ability to win new business relative to upsells. The company also observed budget scrutiny from customers triying to justify their software spend, and this affected metrics such as MAU (monthly active users) and seat count. These issues were mainly concentrated in the SMB segment. 

On the other hand, Okta beat analysts' revenue, operating income, and EPS estimates. Its revenue and EPS guidance for the full year also topped expectations. Overall, this was a challenging quarter for the company.

Okta is up 37.8% since the beginning of the year, and at $108.62 per share, it is trading close to its 52-week high of $111.49 from March 2024. Investors who bought $1,000 worth of Okta’s shares 5 years ago would now be looking at an investment worth $827.01.

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