Why Did Okta Stock Drop 20%?
20% — that roughly corresponds to the drop in Okta’s (NASDAQ:OKTA) market value over the last six months. Here’s a more concise look at what drove that decline — and what might come next .In its most recent quarter (third quarter of fiscal 2026), Okta delivered $742 million in total revenue (up 12% year-over-year) and subscription revenue of $724 million (up 11% yoy). Adjusted earnings per share (EPS) were $0.82, beating expectations. Its “current remaining performance obligations” (cRPO), a key backlog indicator, rose to $2.328 billion — up 13% from a year ago.
Despite that, the stock fell — indicating that good quarterly performance alone wasn’t enough to reverse broader investor concerns.
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Why the drop
First, valuation compression: Okta’s stock had previously run up on high growth expectations, and now the market seems to be pricing in more caution, asking for sustainable margins and predictable cash flows rather than just high growth.
Second, macroeconomic and market sentiment: In uncertain economic conditions, companies like Okta — which sell enterprise software — are often viewed as discretionary for business spending. That uncertainty has weighed on investor appetite.
Third, risk-return recalibration: As Okta transitions from hyper-growth to a more mature growth profile, some investors may prefer newer or faster-growing names. The rebound in fundamentals may feel too modest relative to expectations.
What’s still working for Okta
Okta is generating solid growth and improving cash flow. The $742 million revenue and updated EPS show profitability. Its backlog (cRPO) growth signals future revenue visibility. Management projects full-year revenue around $2.906–$2.908 billion with healthy operating margin, showing their confidence.
Moreover, Okta’s positioning in identity and access management “security foundation” remains critical — especially as enterprises increasingly invest in security and identity protection.
What’s next
If Okta continues delivering mid-teens revenue growth with margin and cash-flow improvement, and macro conditions stabilize, the market could gradually re-rate the stock. That creates potential upside. On the other hand, if growth slows or enterprise IT spending shrinks, the stock might remain range-bound or even drift lower.
The most likely near-term scenario is modest recovery: steady business performance, gradually building investor confidence, but no dramatic rebound — unless Okta posts stronger-than-expected growth or lands large enterprise/AI-security contracts.
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