On Wednesday, Goldman Sachs maintained its Buy rating on Okta, Inc. (NASDAQ:OKTA) with a steady price target of $107.00, following the company's third quarter fiscal year earnings report. Okta's stock showed a notable increase of 16% in after-hours trading.
The company's third-quarter revenue and EBIT outperformed the Street's expectations by 2% and 15% respectively, according to data from FactSet. With impressive gross profit margins of 76% and an overall "Good" financial health score according to InvestingPro, the company's calculated remaining performance obligations (cRPO) were 4% higher than anticipated.
The technology company's fourth-quarter revenue and EBIT guidance also surpassed the Street's forecasts by 3% and 10%, respectively, with cRPO guidance being 1% higher. Building on its strong revenue growth of 19% over the last twelve months, Okta's initial FY26 revenue guidance aligns with investor expectations despite being 1% below the Street's expectations.
The net retention rate (NRR) slightly decreased to 108% from 110% in the previous quarter. According to InvestingPro analysis, the stock appears undervalued at its current trading price of $81.71.
Goldman Sachs attributes the positive stock response primarily to two factors: the cRPO for the quarter beating the past two quarters' performances by 2%, and the fourth-quarter cRPO guidance indicating a 9% year-over-year increase, which is 1% above the Street's predictions.
While Okta has faced challenges due to macro pressures affecting seat count expansion among current and potential customers, particularly in the lower end of the market, InvestingPro data shows the company maintains a healthy current ratio of 1.83, indicating strong ability to meet short-term obligations. InvestingPro subscribers have access to over 30 additional financial metrics and insights about Okta.
The underlying fundamentals that contributed to Okta's performance include improved deal closures, momentum from new products—which accounted for 15% of bookings—advancements in partner relationships, and robust performance in the public sector, which represented half of the top ten deals. Goldman Sachs reaffirms its Buy rating, expressing confidence in Okta's potential to accelerate growth as it navigates through the normalization of COVID-19 and enhances its market strategy with an upgraded product portfolio.
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