Why Okta Stock Lost 16% in August
Shares of Okta (NASDAQ: OKTA) were pulling back last month after the cloud-based identity software specialist posted disappointing results in its fiscal 2025 second-quarter earnings report toward the end of the month. Okta's growth rate has slowed substantially since the end of the pandemic, following challenges with its integration of Auth0 and multiple security breaches.
The second-quarter results beat nominal expectations but showed that the company's growth is expected to slow. According to data from S&P Global Market Intelligence, the stock finished the month down 16%.
As you can see from the chart below, the earnings report was responsible for all of the decline after an earlier sell-off driven by the broader market pullback.
Okta faces more doubts
Okta is the independent leader in its niche of cybersecurity, focusing on ensuring that employees and customers can log in securely and smoothly to the apps they need. However, its growth story has faded in recent years.
In the second quarter, revenue rose 16% to $646 million, which beat estimates of $632.9 million. Current remaining performance obligations (cRPO), a proxy for backlog over the next year, rose 13% to $1.995 billion, which could indicate slowing growth ahead.
On the bottom line, the company achieved an important milestone, reaching profitability on a generally accepted accounting principles (GAAP) basis of $29 million, even though it reported an operating loss of $19 million. On an adjusted basis, it reported earnings per share of $0.72, up from $0.31 and ahead of the consensus at $0.61. CEO Todd McKinnon noted the company's expanded product offerings helped drive record profitability and strong cash flow.
Growth is expected to slow
What seemed to throw off investors was the company's guidance. It forecast revenue of $648 million-$650 million, a growth rate of 11%, which was ahead of the consensus but implied essentially flat sequential growth from the second quarter.
Okta also called for cRPO growth of just 9%, indicating a possible slowdown in demand. On the bottom line, it sees adjusted earnings per share of $0.57-$0.58, slightly ahead of estimates at $0.55. Wall Street analysts roundly lowered price targets and ratings in some cases due to the underwhelming guidance.
While Okta has a history of giving conservative guidance, the sell-off seems understandable. The company will have to stem the slide in revenue growth and continue to ramp up profitability for the stock to rebound.
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Jeremy Bowman has positions in Okta. The Motley Fool has positions in and recommends Okta. The Motley Fool has a disclosure policy.
Why Okta Stock Lost 16% in August was originally published by The Motley Fool