Okta Declines 16% Post Q1 Earnings: Buy, Sell or Hold the Stock?

Core Viewpoint - Okta's shares fell 16.16% to $105.22 after reporting strong earnings and revenue growth, primarily due to slowing growth expectations for the upcoming fiscal second quarter and fiscal 2026 [1] Financial Performance - For Q2 fiscal 2026, Okta expects revenues between $710 million and $712 million, reflecting a 10% year-over-year growth, down from 11.5% in Q1 fiscal 2026 [2] - For fiscal 2026, Okta anticipates revenues between $2.85 billion and $2.86 billion, indicating a 9-10% growth from fiscal 2025 [3] - Non-GAAP earnings for fiscal 2026 are projected between $3.23 and $3.28 per share, an increase from previous guidance of $3.15 to $3.20 per share [3] Market Performance - Year-to-date, Okta shares have returned 33.5%, outperforming peers like Microsoft (8.5%), IBM (14.5%), and CyberArk (18.4%) [4] - The Zacks Consensus Estimate for Q2 fiscal 2026 earnings remains steady at 79 cents per share, suggesting a 9.72% year-over-year growth [7] - For fiscal 2026, the Zacks Consensus Estimate for earnings is $3.19 per share, indicating a 13.52% growth over fiscal 2025 [8] Product Demand and Client Growth - Okta is experiencing strong demand for its identity solutions, including Identity Governance and Privileged Access, which are crucial for managing non-human identities [9] - The company exited Q1 fiscal 2026 with approximately 20,000 customers and $4.084 billion in remaining performance obligations (RPOs), indicating robust subscription revenue growth [10] - The number of customers with over $100,000 in Annual Contract Value increased by 70 sequentially to 4,870 [10] Strategic Partnerships and Innovations - Okta's governance portfolio has surged 400% over the past three years, reaching nearly $40 billion, supported by a strong partner ecosystem including AWS, Microsoft, and Salesforce [12] - The company offers AI-powered capabilities through Okta AI, enhancing user experiences and cybersecurity [11] Valuation and Market Sentiment - Okta shares are considered overvalued, with a Price/Cash Flow ratio of 24.59X compared to the sector's 19.8X, indicating a premium valuation [13] - The stock is trading below its 50-day and 200-day moving averages, suggesting a bearish trend [16] - Despite its innovative portfolio, Okta faces challenges from macroeconomic conditions and a stretched valuation, leading to a Zacks Rank 3 (Hold) [19]