Okta (NasdaqGS:OKTA) Q4 2026 Earnings call March 04, 2026 05:00 PM ET Company ParticipantsBrett Tighe - CFOBrian Essex - Executive Director and U.S. Software Equity ResearchDave Gennarelli - Senior Vice President of Investor RelationsEric Kelleher - President and COOPeter Levine - Managing DirectorRoger Boyd - Executive Director and Software Equity ResearchTodd McKinnon - CEO, Chairperson, and Co-FounderTodd Weller - Managing DirectorConference Call ParticipantsAdam Borg - Managing Director and Senior Equit ...

Core Insights - Zscaler Inc. reported FQ2 2026 financial results with revenue of $816 million, a 26% year-over-year increase, surpassing market expectations [1] - The company's Annual Recurring Revenue (ARR) grew by 25% to $3.4 billion, driven by large-scale enterprise deals [1] - The number of customers contributing over $1 million in ARR increased by 18% year-over-year, with the Americas region accounting for 57% of total revenue [1] Business Strategy - Zscaler is positioning itself as a leader in the AI security space, having processed nearly 1 trillion AI transactions in 2025 [2] - The launch of 'AI Protect' aims to manage shadow AI and prevent data leaks or prompt-injection attacks [2] - The company is shifting its business model towards metered, non-seat-based usage, which now represents over 25% of new annual contract value [2] Growth Initiatives - The Z-Flex program allows large enterprises to swap or activate security modules without new procurement cycles, generating over $290 million in contract value this quarter [4] - Strategic acquisitions, including the purchase of SquareX and the integration of Red Canary, are expanding Zscaler's platform capabilities [4] Product Offerings - Zscaler operates as a cloud security company, providing various cyberthreat protection products such as Zscaler Internet Access, Zscaler Private Access, Zero Trust Firewall, Cloud Sandbox, and Zero Trust Browser [5]

Core Insights - Okta (OKTA) is expected to report fourth-quarter fiscal 2026 results on March 04, with projected revenues between $748 million and $750 million, reflecting a year-over-year growth of 10% [1] - The current Remaining Performance Obligations (RPO) is anticipated to be between $2.445 billion and $2.450 billion, indicating a year-over-year growth of 9% [1] - Non-GAAP earnings are forecasted to be in the range of 84-85 cents per share, based on approximately 185 million diluted weighted-average shares outstanding [1] Revenue and Earnings Estimates - The Zacks Consensus Estimate for earnings has remained steady at 85 cents per share, showing a year-over-year growth of 8.97% [2] - The consensus revenue estimate is pegged at $749.10 million, indicating an increase of 9.84% from the previous year's quarter [2] - Okta has consistently beaten the Zacks Consensus Estimate in the last four quarters, with an average earnings surprise of 9.05% [2] Customer Growth and Product Development - Okta's expanding product portfolio, particularly in security and identity governance, is expected to drive client acquisition and revenue growth [3] - The company reported a 7% year-over-year increase in customers with more than $100 thousand in Annual Contract Value (ACV), totaling 5,030 [3] - Okta exited the third quarter of fiscal 2026 with over 20,000 customers and $4.292 billion in Remaining Performance Obligations, indicating strong subscription revenue growth prospects [4] Innovation and Market Position - Okta's focus on innovation, including new products like Okta Identity Governance and Okta for AI agents, is anticipated to provide significant value to customers [5] - The company's emphasis on securing AI agents is expected to be a major growth driver, with over 100 customers engaged in trials for these solutions, representing more than $200 million in existing annual recurring revenue [6] Earnings ESP and Zacks Rank - According to the Zacks model, Okta has an Earnings ESP of 0.00% and a Zacks Rank of 1 (Strong Buy), which typically indicates a favorable outlook for earnings performance [7]

Core Viewpoint - The article highlights the significant advancements of domestic AI security agents, particularly the HengNao security AI from Anheng Information, which has demonstrated superior capabilities in identifying and exploiting vulnerabilities compared to its international counterpart, Claude Code Security [2][3][15]. Group 1: Performance Comparison - HengNao security AI successfully replicated all three vulnerabilities identified by Claude Code Security and additionally discovered ten new 0day vulnerabilities, showcasing a "3+10" achievement [3][12][15]. - The replication process confirmed the accuracy of the vulnerabilities' exploitation conditions and impact range, aligning perfectly with the official disclosures [9][10]. Group 2: Technical Capabilities - HengNao's ability to identify vulnerabilities is attributed to its deep integration of AI capabilities with over a decade of security expertise and proprietary data from Anheng Information [19][20]. - The AI operates through a fully automated process, from code acquisition to vulnerability exploitation and report generation, enabling rapid and large-scale deep digging [21][22]. Group 3: Competitive Edge - HengNao's performance was validated in a competitive environment, where it ranked among the top three in the "Tianfu Cup" international cybersecurity competition, demonstrating its technical prowess against top human hackers [24][25]. - The article emphasizes that the advancements in AI security capabilities represent a qualitative leap from merely discovering known vulnerabilities to uncovering unknown risks through deep code reasoning and logical analysis [15][16]. Group 4: Future Directions - Anheng Information plans to leverage HengNao as a core engine to enhance proactive threat hunting and automated penetration testing services, aiming to transition from traditional manual security services to intelligent and automated solutions [26].

Core Insights - Zscaler, Inc. reported strong financial results for the second quarter of fiscal year 2026, with significant growth in revenue and annual recurring revenue (ARR) [5][6] - The company emphasizes its position as a leader in cybersecurity, particularly in the context of AI adoption, highlighting robust demand across its growth pillars [2][4] Financial Performance - Revenue increased by 26% year-over-year to $815.8 million [5][6] - ARR grew by 25% year-over-year to $3,359 million, with $155.5 million being net new ARR for the quarter [5][6] - Operating cash flow rose by 14% year-over-year to $204.1 million, while free cash flow increased by 18% to $169.1 million [5][6] - Non-GAAP operating margin reached over 22%, marking an all-time high for the company [2][6] Business Developments - Zscaler acquired SquareX Holdings, Inc. to enhance its Zero Trust browser security capabilities [4] - The company launched Zscaler AI Protect, a comprehensive suite of AI security innovations aimed at managing enterprise AI implementations [8] - Zscaler expanded its global infrastructure with a new data center in Kuala Lumpur, Malaysia, to support growing demand in Southeast Asia [8] Future Guidance - For the third quarter of fiscal 2026, Zscaler expects revenue between $834 million and $836 million, representing a growth of 23% [8] - The company anticipates non-GAAP income from operations to be between $187 million and $189 million, reflecting a growth of 28% to 29% [8] - Zscaler projects ARR for the full year of fiscal 2026 to be between $3.730 billion and $3.745 billion, indicating a growth of 24% [8]

Core Viewpoint - Anthropic's release of the code security tool Claude Code Security has caused a significant drop in the stock prices of major cybersecurity companies, leading to a loss of over $10 billion in market value across the sector, raising concerns about the future of traditional security tools [2][8][9]. Group 1: Market Reaction - Following the announcement of Claude Code Security, major cybersecurity stocks like CrowdStrike and Cloudflare experienced sharp declines, with CrowdStrike dropping over 6.5% and the Global X Cybersecurity ETF falling 3.8%, expanding its year-to-date decline to 14% [6][8]. - The market's reaction indicates a state of panic, as investors fear that AI will directly encroach on the market share of specialized security firms [9][30]. Group 2: Features of Claude Code Security - Claude Code Security is designed to efficiently scan code repositories for vulnerabilities and automatically generate targeted patches, significantly outperforming traditional security tools [2][15]. - The tool utilizes advanced logic to understand complex code interactions, allowing it to identify vulnerabilities that traditional static analysis tools often miss [18][21]. Group 3: Implications for the Cybersecurity Industry - The introduction of Claude Code Security represents a potential disruption to the cybersecurity industry, as it can perform up to 80% of vulnerability scanning and remediation suggestions, reducing the need for a large number of security engineers [32][30]. - This shift raises questions about the necessity of high subscription fees for security services, as companies may no longer require extensive security personnel [33][34]. Group 4: Future Outlook - The rapid evolution of AI technology, as exemplified by Claude Code Security, poses a threat to traditional software companies, as the pace of AI advancement outstrips that of product iterations in conventional software [37][36]. - The current situation serves as a warning signal for the cybersecurity sector, indicating that further significant changes may be on the horizon as AI continues to integrate into core security workflows [36][38].

Financial Data and Key Metrics Changes - The company reported a strong Q2 with revenue growth of 15%, reaching $2.59 billion, and Next-Generation Security ARR grew 33% to $6.33 billion, including a $200 million contribution from the Chronosphere acquisition [31][32] - Operating margin was 30.3%, marking the third consecutive quarter of over 30% operating margins, with diluted non-GAAP EPS at $1.03 [37][38] - Remaining performance obligation (RPO) grew 23% to $16.0 billion, with current RPO at $7.1 billion, representing 18% growth [32][33] Business Line Data and Key Metrics Changes - The SASE business surpassed the $1.5 billion ARR milestone, growing approximately 40% year-on-year, indicating strong demand for integrated security solutions [14][31] - Software firewall ARR grew approximately 25%, driven by the need to secure dynamic multi-cloud environments, while hardware revenue increased nearly 10% [16][31] - XIM surpassed the $500 million ARR milestone, with over 600 customers, achieving mean time remediation of less than 10 minutes for over 60% of deployed customers [17][31] Market Data and Key Metrics Changes - The Americas region grew 14%, EMEA grew 17%, and JAPAC also grew 17%, reflecting broad-based strength across all major markets [33] - The company noted a significant increase in demand for AI security solutions, with Prisma AIRS rapidly scaling to over 100 customers [20][31] Company Strategy and Development Direction - The company is focused on a platformization strategy, integrating various security solutions to provide comprehensive protection as AI becomes more embedded in enterprise workflows [6][9] - Recent acquisitions of CyberArk and Chronosphere are seen as pivotal in enhancing the company's capabilities in identity security and observability, respectively [25][24] - The company aims to become the largest identity security player by addressing the growing needs of identity to secure AI agents [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for cybersecurity solutions, particularly as enterprises begin to integrate AI into their operations [5][6] - The company anticipates that the shift towards AI will drive further consolidation and platformization in the security market, enhancing the need for integrated solutions [49][50] - Management highlighted the importance of adapting to evolving technology cycles and maintaining a proactive investment strategy to stay ahead of market inflections [30] Other Important Information - The company reported a total gross margin of 76.1%, with product gross margin at 78.2%, reflecting a higher software mix compared to the previous year [34][35] - The company is preparing for a significant cash outlay related to the CyberArk acquisition, with a total combined cash outlay of $4.9 billion expected [38] Q&A Session Summary Question: Comparison of AI shift to cloud computing and potential obsolescence - Management noted that while there are concerns about AI rendering parts of the cybersecurity stack obsolete, the trend is towards more platformization and consolidation in security solutions [47][49] Question: Impact of LLMs on SIEM tools - Management believes LLMs will enhance security capabilities rather than replace existing tools, emphasizing the need for high accuracy in security applications [53][55] Question: Joint pipeline opportunities with CyberArk - Management highlighted the strong collaboration between teams from both companies to pursue joint opportunities, with a roadmap for overlapping pipelines already established [60][62] Question: Drivers of strength in SASE business - Management indicated that the acceleration in the SASE business is driven by customers seeking comprehensive solutions that integrate various security aspects for improved productivity [69][72] Question: Volume of network traffic and its impact - Management acknowledged that while AI adoption is increasing, it is still early to determine its full impact on network traffic, but they expect significant growth as enterprise adoption continues [75][76]

Financial Data and Key Metrics Changes - The company reported a strong Q2 with revenue growth of 15%, totaling $2.59 billion, and Next-Generation Security (NGS) ARR increased by 33% to $6.33 billion, with organic growth of 28% year-over-year [5][31][32] - The operating margin was 30.3%, marking the third consecutive quarter of 30%+ operating margins, reflecting a 190 basis point expansion year-over-year [37] - Diluted non-GAAP EPS reached $1.03, exceeding guidance, and adjusted free cash flow was $502 million, with a trailing 12-month adjusted free cash flow margin of 37.9% [37][38] Business Line Data and Key Metrics Changes - The SASE business surpassed $1.5 billion ARR, growing approximately 40% year-on-year, solidifying its position as the fastest-growing SASE provider [14] - Software Firewall ARR grew approximately 25%, driven by the need to secure dynamic multi-cloud environments [16] - XSIAM surpassed the $500 million ARR milestone, with over 600 customers, achieving mean time remediation of less than 10 minutes for over 60% of deployed customers [17] Market Data and Key Metrics Changes - The Americas region grew by 14%, EMEA by 17%, and JAPAC by 17%, indicating broad-based strength across all major markets [33] - The company reported a net retention rate of 119% among platformized customers, with low single-digit churn [9] Company Strategy and Development Direction - The company is focused on a platformization strategy, integrating various security solutions to address the evolving cybersecurity landscape, particularly with the rise of AI [5][6][10] - Recent acquisitions of CyberArk and Chronosphere are seen as pivotal for enhancing identity security and observability capabilities, with plans for rapid integration and innovation [25][24] - The company aims to become the largest identity security player, addressing the growing needs of identity to secure AI agents [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for cybersecurity solutions, particularly as enterprises begin to integrate AI into their workflows [6][50] - The shift towards AI is viewed as an opportunity for increased security adoption, with a focus on platformization and data harmonization [50] - The company anticipates continued growth in NGS ARR, projecting a range of $8.52 billion to $8.62 billion for the fiscal year 2026, reflecting a 53%-54% increase [43] Other Important Information - The company is preparing for the post-quantum era, addressing emerging threats and ensuring customers are equipped for future challenges [16] - The integration of Koi is expected to enhance endpoint security capabilities, particularly in relation to autonomous AI agents [22][23] Q&A Session Summary Question: Comparison of AI shift to cloud computing and M&A strategy - Management compared the current AI shift to the previous cloud transition, emphasizing the need for platformization and consolidation in security solutions [47][49] Question: Concerns about LLMs replacing SIEM tools - Management views LLMs as complementary to security capabilities, enhancing data classification and threat detection, but not a replacement for comprehensive security solutions [53][55] Question: Joint pipeline opportunities with CyberArk - Management highlighted the collaboration between CyberArk and Palo Alto Networks teams to pursue joint opportunities, with a focus on integrating capabilities and building a unified go-to-market strategy [60][62] Question: Strength in SASE business - Management noted that the acceleration in the SASE business is driven by customers seeking comprehensive solutions to address hybrid work environments and security needs [69][72] Question: Impact of AI adoption on network traffic - Management indicated that while AI adoption is increasing, it is still early to assess its full impact on network traffic, but expects growth as enterprises continue to adopt AI solutions [75][76]

Financial Data and Key Metrics Changes - The company reported a total revenue of $2.59 billion, reflecting a year-over-year growth of 15% [30] - Next-Generation Security ARR grew 33% to $6.33 billion, with organic growth of 28% year-over-year [29] - The operating margin for Q2 was 30.3%, marking a 190 basis point expansion compared to the previous year [34] - Diluted non-GAAP EPS reached $1.03, exceeding the high end of guidance [34] Business Line Data and Key Metrics Changes - The SASE business surpassed the $1.5 billion ARR milestone, growing approximately 40% year-over-year [12] - Software firewall ARR grew approximately 25%, driven by increased demand for securing dynamic multi-cloud environments [14] - XIM surpassed the $500 million ARR milestone, with over 60% of deployed customers achieving mean time remediation of less than 10 minutes [15] Market Data and Key Metrics Changes - The Americas region grew by 14%, EMEA by 17%, and JAPAC by 17%, indicating broad-based strength across all major markets [31] - The company generated approximately $200 million in ARR from the Chronosphere acquisition, contributing to overall growth [29] Company Strategy and Development Direction - The company is focused on a platformization strategy, which has led to a record number of platformizations in Q2, totaling approximately 1,550, up 35% [7] - The strategy includes expanding into identity security and observability, with the recent acquisition of CyberArk and Chronosphere [23][22] - The company aims to become the largest identity security player over time, addressing the growing needs of identity to secure AI agents [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing demand for cybersecurity solutions, particularly as enterprises integrate AI into their workflows [5] - The company anticipates that the shift towards AI will drive more security adoption and platformization, as organizations seek to harmonize their security data [48] - Management highlighted the importance of real-time security measures as AI becomes more embedded in enterprise operations [6] Other Important Information - The company expects a cash outlay of $2.3 billion in Q3 related to the CyberArk acquisition, with a total combined cash outlay of $4.9 billion [36] - The remaining performance obligation (RPO) grew 23% to $16.0 billion, indicating strong future revenue potential [30] Q&A Session Questions and Answers Question: Comparison of AI shift to cloud computing and its impact on cybersecurity - Management noted that the current AI shift is seen as an opportunity for more platformization and consolidation in security, similar to the cloud transition [46][47] Question: Concerns about LLMs replacing SIEM tools - Management believes LLMs will enhance security capabilities rather than replace existing tools, emphasizing the need for high accuracy in security measures [52][53] Question: Joint pipeline opportunities with CyberArk - Management highlighted the collaboration between teams from both companies to pursue joint opportunities, indicating early momentum in leveraging combined capabilities [59][62]

Core Insights - Palo Alto Networks (PANW) experienced a 4.8% increase in stock price this week, closing at $166.95, despite being down 9.36% year-to-date and 17.3% from the previous year [1] - The company completed a significant $25 billion acquisition of CyberArk, enhancing its identity security capabilities and aligning with its platformization strategy [1] - Upcoming earnings report on February 17 is anticipated to reset market expectations, with analysts projecting $0.94 EPS and $2.58 billion in revenue, indicating year-over-year growth [1] Stock Performance - PANW outperformed the broader market and cybersecurity peers, with the S&P 500 dropping 1.29% while the ETFMG Prime Cyber Security ETF gained 3.51% [1] - The stock opened at $165.03, reached an intraday high of $170.49, and closed at $166.95, which is significantly below the average analyst price target of $222.97, suggesting a potential upside of approximately 33% [1] Acquisition Details - The CyberArk acquisition, valued at $25 billion, is the second-largest acquisition of an Israeli company, with CyberArk shareholders receiving $45 in cash plus 2.2005 PANW shares per share [1] - This acquisition is part of PANW's strategy to consolidate various security solutions into unified platforms, positioning identity security as a central focus [1] - The previous acquisition of Chronosphere for $3.35 billion in January 2026 further indicates PANW's aggressive expansion into adjacent security markets [1] Earnings Expectations - Analysts expect PANW to report Q2 fiscal 2026 earnings with $0.94 EPS and $2.58 billion in revenue, reflecting 16% EPS growth and 14.15% revenue growth year-over-year [1] - Mixed analyst sentiment exists, with Jefferies maintaining a $250 price target while Stifel and JPMorgan have lowered their targets due to concerns about organic growth and reseller feedback [1] - The consensus rating includes 12 Strong Buy, 30 Buy, 11 Hold, and 2 Sell, indicating overall confidence but also uncertainty regarding growth sustainability amid integration of acquisitions [1] Industry Context - PANW is focusing on AI-driven security solutions, positioning itself against competitors like Fortinet and Zscaler, which are also investing heavily in AI security [1] - Gartner predicts that by 2028, 50% of organizations will adopt zero-trust data governance due to risks associated with AI-generated data, which aligns with PANW's strategic direction [1] - The cybersecurity sector is expected to see increased investment as security incidents rise, potentially benefiting companies like PANW [1]