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Lower seat counts, sluggish upsell rates, and the lingering impact from a major security breach in October 2023 have pressured Okta's (OKTA) financial results, sending shares lower by 11% on a year-to-date basis prior to today's gains. Alongside OKTA's disappointing financial and stock performance came more muted expectations heading into last night's Q3 results, which is working in its favor today after the company delivered an encouraging beat-and-raise earnings report.

• Echoing a similar message as other cybersecurity companies such as Palo Alto Networks (PANW), Qualys (QLYS), and Zscaler (ZS), CFO Brett Tighe commented during OKTA's Q3 earnings call that organizations are still scrutinizing budgets and rationalizing their software spend. At the same time, the security incident from last year also likely had some impact on OKTA's results, adding another headwind to seat growth and MAUs. However, cRPO growth of 13% did exceed the company's guidance of 9%, which was deemed a major disappointment last quarter.
• Although OKTA continues to experience seat declines in its workforce identity business, the company is having success with cross selling more products into both new and existing customers. In particular, the company's new products, such as Okta privileged access, device access, fine grained authorization, and identity threat protection, are seeing robust adoption. In fact, in Q3, new products accounted for 15% of total bookings.
• This strong interest in OKTA's new products is creating significant cross-selling opportunities. As the company sells more products into its installed customer base, an increasing number of customers are crossing the $1.0 mln annual contract value (ACV) mark. In fact, the $1.0+ mln ACV cohort is OKTA's fastest-growing cohort and represents approximately $1.0 bln in ACV.
• Another source of strength is OKTA's partner ecosystem, as reflected by the fact that all of its top ten deals in Q3 involved partners, with each of those deals worth over $1.0 mln in ACV.
• Turning to OKTA's guidance, the company's EPS and revenue outlook for Q4 comfortably exceeded expectations, but its cRPO forecast calls for growth to slow to just 9% to $2.130-$2.135 bln. Furthermore, the company provided an initial outlook for FY26 during the earnings call, estimating revenue growth of only 7%. Although it's not formal guidance, the mediocre growth for FY26 isn't overly inspiring, although OKTA noted that it's "maintaining an appropriate level of conservatism" in regard to its guidance.

Overall, OKTA's results and outlook help to ease concerns surrounding its seat declines and with the impact from the security breach now in the rearview mirror, the company will be dealing with one less headwind. Strong growth for new products is providing a needed top-line boost, but it remains a mixed picture for OKTA as seat and MAU headwinds continue.