""All of our top 10 deals in the third quarter involve partners. These 10 deals were all over $1 million in annual contract value and in aggregate represented approximately $20 million in ACV."" - Todd McKinnon
Okta Inc (OKTA) Q3 FY2025 Results: Large-ACV momentum, governance expansion, and disciplined profitability with go-to-market specialization
Executive Summary
Okta delivered solid Q3 FY2025 results driven by large-ACV customer wins, an expanding product portfolio, and strong cash generation. Revenue came in at $665 million, up approximately 13.9% year over year, with a gross margin of about 76.4% and negative GAAP operating income of $16 million for the quarter. Management emphasized efficiency gains and continued spend discipline, noting that a meaningful portion of Q3 bookings (about 15%) came from newer products, underscoring the growing contribution of governance, privileged access, and identity protection within the portfolio. The quarter highlighted a robust partner ecosystem, with all top 10 deals involving partners and roughly $20 million in ACV from these large engagements, including significant federal and public-sector activity.
Management provided a constructive near-term outlook, guiding Q4 revenue growth of 10-11% and FY25 revenue growth of 15%, along with a non-GAAP operating margin of 23% for Q4 and a FY25 free cash flow margin of ~32%. For FY26, Okta signaled a conservative but achievable pathway: revenue of roughly $2.77–$2.78 billion (≈+7% YoY), non-GAAP operating margin of at least 22%, and free cash flow margin of at least 24%. The company also flagged ongoing gross retention strength, some MAU/seat headwinds, and a continued shift toward multi-product attach as a lever for retention and expansion. The results and guidance reinforce Okta’s strategic focus on growth through product diversification ( governance, privileged access, identity threat protection, fine-grained authorization) and on strengthening its neutral, platform-based identity moat in a shifting security landscape.
Overall, the balance sheet remains solid with strong operating cash flow, sizable cash and short-term investments, and a growing portfolio of recurring-revenue contracts. Valuation remains stretched on traditional earnings metrics, but the company’s growth trajectory, profitability improvement momentum, and expanding addressable market for secure identity provide a plausible longer-term upside for patient investors.
Key Performance Indicators
Revenue
665.00M
QoQ: 2.94% | YoY:13.87%
Gross Profit
508.00M
76.39% margin
QoQ: 3.46% | YoY:15.72%
Operating Income
-16.00M
QoQ: 15.79% | YoY:85.59%
Net Income
16.00M
QoQ: -44.83% | YoY:119.75%
EPS
0.00
QoQ: -99.94% | YoY:100.02%
Revenue Trend
Margin Analysis
Key Insights
Q3 FY2025 revenue: $665 million, up 13.9% YoY and 2.9% QoQ. Net income: $16 million; net income margin: 2.4%; EPS (diluted): $0.0001.
Non-GAAP perspective highlighted in the earnings call; management noted no quantified impact from the Oct-2023 security incident on Q3 results, though not fully quantifiable, some impact is possible.
Net income: $16 million; cash and cash equivalents: $310 million; short-term investments: $1.938 billion; cash and short-term investments: $2.248 billion; total debt: $960 million; net debt: $650 million.
Financial Highlights
Revenue and profitability
- Q3 FY2025 revenue: $665 million, up 13.9% YoY and 2.9% QoQ. Net income: $16 million; net income margin: 2.4%; EPS (diluted): $0.0001.
- Gross margin: 76.4% (gross profit: $508 million). Operating income: -$16 million; operating margin: -2.4%. EBITDA: -$16 million; EBITDA margin: -2.4%.
- Non-GAAP perspective highlighted in the earnings call; management noted no quantified impact from the Oct-2023 security incident on Q3 results, though not fully quantifiable, some impact is possible.
Cash flow and balance sheet
- Operating cash flow: $159 million; free cash flow: $158 million; capex: approximately $12.99 million.
- Net income: $16 million; cash and cash equivalents: $310 million; short-term investments: $1.938 billion; cash and short-term investments: $2.248 billion; total debt: $960 million; net debt: $650 million.
- Balance sheet health: total assets $9.01 billion; total liabilities $2.745 billion; total stockholders’ equity $6.265 billion. Liquidity and balance sheet metrics remain solid, with a current ratio of 1.34x and debt ratio of 10.7%.
Key operating metrics and mix
- Large ACV momentum: the cohort of $1 million+ ACV customers now represents about $1.0 billion in ACV.
- New product contribution: roughly 15% of Q3 bookings were from new products (governance, privileged access, identity threat protection, etc.). Governance represents about one-third of contract value when sold in workforce deals.
- Channel and partnerships: all top 10 deals in Q3 involved partners, totaling roughly $20 million in ACV, reinforcing Okta’s partner ecosystem as a core growth engine.
- Customer dynamics: net retention remains under some pressure due to seat/MAU dynamics, while gross retention remains strong; management emphasized attach rates with more products driving retention improvements over time.
Liquidity metrics versus market valuation
- Price-to-sales ratio: ~18.4x; price-to-book ~1.95x; price-to-earnings ~191x (reflecting high-growth expectations and early profitability stage).
- Enterprise value multiple in the provided peer data is negative in one data view, indicating binary effects from cash-rich balance sheet and equity valuation; the positive takeaway for Okta is a robust cash position and potential for further value creation through profitable growth.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
665.00M
13.87%
2.94%
Gross Profit
508.00M
15.72%
3.46%
Operating Income
-16.00M
85.59%
15.79%
Net Income
16.00M
119.75%
-44.83%
EPS
0.00
100.02%
-99.94%
Key Financial Ratios
currentRatio
1.34
grossProfitMargin
76.4%
operatingProfitMargin
-2.41%
netProfitMargin
2.41%
returnOnAssets
0.18%
returnOnEquity
0.26%
debtEquityRatio
0.15
operatingCashFlowPerShare
$0.93
freeCashFlowPerShare
$0.93
priceToBookRatio
1.95
priceEarningsRatio
191.2
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Quote-based insights from management discussions during the earnings call:
- Quote 1 (Todd McKinnon): 'All of our top 10 deals in the third quarter involve partners. These 10 deals were all over $1 million in annual contract value and in aggregate represented approximately $20 million in ACV.' Significance: reinforces the strategic role of an expanded partner ecosystem in scaling large, multi-year contracts and validates the effectiveness of the Hunter-Farmer go-to-market approach in winning significant multi-year deals with collaboration across partners.
- Quote 2 (Brett Tighe): 'Approximately 15% of Q3 bookings were from new products.' Significance: demonstrates early traction for emerging product categories (governance, privileged access, identity threat protection, etc.) and supports the thesis that product attach is a lever for both growth and retention (as customers expand into broader identity solutions).
"All of our top 10 deals in the third quarter involve partners. These 10 deals were all over $1 million in annual contract value and in aggregate represented approximately $20 million in ACV."
— Todd McKinnon
"Approximately 15% of Q3 bookings were from new products."
— Brett Tighe
Forward Guidance
Near-term (Q4 FY25): Revenue growth of 10-11%; current RPO growth of 9%; non-GAAP operating margin around 23%; free cash flow margin ~32%. Full-year FY25 guidance raised to 15% revenue growth; non-GAAP operating margin ~22% and free cash flow margin ~25%. FY26 guidance: revenue of $2.77–$2.78 billion (≈+7% vs. FY25), non-GAAP operating margin of at least 22%, free cash flow margin of at least 24%. Management notes ongoing focus on profitable growth and leveraging efficiency gains built over the last two years; a formal FY26 plan will be provided on the next earnings call.
Key monitoring factors for investors: (1) trajectory of MAU/seats and how it impacts net retention vs. gross retention; (2) progression and monetization of emerging products (governance, Privileged Access, Identity Threat Protection, Identity Security Posture Management); (3) go-to-market specialization progress and its impact on growth and profitability; (4) international expansion and channel partner development; (5) macro spending trends and government/regulated sectors as a growth driver.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
OKTA Focus
76.39%
-2.41%
0.26%
191.20%
CRWD
74.70%
-5.52%
-0.55%
-1,083.29%
NET
77.70%
-7.16%
-1.58%
-451.59%
MDB
74.40%
-5.27%
-0.65%
-511.85%
PANW
72.90%
9.56%
0.00%
118.59%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Okta enters a period of accelerated product diversification and GTM specialization designed to drive attach rates and larger, multi-product deals. The Q3 results demonstrate tangible progress in governance and identity protection product adoption, supported by a robust partner ecosystem. The FY26 revenue guide (~7% growth) and minimum non-GAAP margin of 22% with FCF margin at least 24% reflect a disciplined approach to growth and profitability. However, investors should monitor MAU/seat dynamics, international expansion progress, and the pace of new-product adoption that will determine the sustainability of gross retention improvements and overall ARR growth. Relative to peers, Okta trades at a lower multiple on sales (~18.4x) despite significant growth potential, which could offer upside if the company executes on its multi-product strategy and international expansion without materially impacting profitability.
Key Investment Factors
Growth Potential
Sustained growth through multi-product attach (governance, Privileged Access, Identity Threat Protection) within Okta Identity Cloud, expansion of Auth0 into developer-centric use cases, and stronger partner ecosystems driving large $1M+ ACV deals. FY26 guidance implies growth outpacing some peers in a volatile macro environment, with a higher emphasis on profitability alongside growth (FCF margin at least 24%). International expansion and go-to-market specialization (Americas SMB Hunter-Farmer, global expansion for IT security vs. developers) present additional upside.
Profitability Risk
Key risks include MACRO- and budget-driven headwinds (seat/MAU pressure affecting net retention), competition in governance/identity platforms (e.g., SailPoint and other identity vendors), slower-than-expected adoption of new products, execution risk related to the Hunter-Farmer specialization, and potential regulatory or vendor-lock-in dynamics (customer sensitivity to bundling and vendor ecosystems). The October 2023 security incident remains a qualitative risk but is stated as not quantified in impact; ongoing security posture remains a focal point for customers.
Financial Position
Healthy liquidity with $2.25B in cash and short-term investments, minimal debt ($960M total; net debt ~$650M), and strong operating cash flow ($159M) with meaningful free cash flow ($158M). The balance sheet supports ongoing investments in product development, GTM specialization, and potential M&A opportunities to augment the platform.
SWOT Analysis
Strengths
Strong large-ACV customer cohort (>$1M ACV) now totaling about $1.0B in ACV