Shares of Okta, Inc. (NASDAQ: OKTA) experienced a significant surge in after-hours trading on Wednesday, climbing 15.7% as the identity management company reported fiscal second-quarter results that exceeded analyst expectations and raised its full-year outlook. The stock jumped to $155.47, up from the regular session close of $134.42, adding approximately $3.5 billion to the company's market capitalization. This move reflects growing investor confidence in the company's ability to convert its backlog into revenue and capitalize on the expanding demand for digital identity solutions.
For the fiscal second quarter ended July 31, 2026, Okta reported revenue of $805 million, an 11% increase year-over-year. Subscription revenue, which constitutes the bulk of the company's top line, rose 12% to $793 million. Adjusted earnings per share came in at $1.05, surpassing the consensus estimate of $0.97. The company's remaining performance obligations (RPO), a key indicator of future revenue, increased 17% to $4.858 billion, while current RPO grew 14% to $2.585 billion. This acceleration in backlog growth, which outpaced revenue growth, was a key driver of the positive market reaction.
Okta also raised its full-year guidance. The company now expects fiscal 2027 revenue of approximately $3.221 billion, up $26 million from its previous midpoint. Adjusted operating income guidance was raised by $19 million to $835 million, and adjusted earnings per share were lifted by nine cents to $3.92. More notably, the company increased its free cash flow forecast by $50 million, bringing the midpoint to $920 million, implying an annual margin of 28% to 29%. This robust cash flow generation is a testament to Okta's improving operational efficiency.
The company's profitability metrics also improved. GAAP operating income reached $107 million, representing a 13% margin, while adjusted operating income hit $226 million, a 28% margin. This profitability improvement is partly due to higher-margin subscription revenue and disciplined cost management. Chief Financial Officer Brett Tighe attributed the strong performance to large enterprise deals and the adoption of Okta Identity Governance, which has become a significant growth driver.
CEO Todd McKinnon highlighted the accelerating demand for machine identities, stating, "Every agent needs a trusted identity and clear controls." This commentary underscores Okta's strategic positioning in the emerging AI-driven economy, where secure authentication for AI agents is becoming critical. The company's focus on this area is likely to be a key topic on its earnings call, scheduled for 5:00 PM EDT.
Despite the positive news, the company's third-quarter outlook was mixed. Revenue guidance of $815 million at the midpoint exceeded consensus estimates of $808 million, but earnings guidance of 93 cents per share came in a cent below expectations. Additionally, the company's third-quarter free cash flow margin is expected to be between 21% and 23%, lower than the 28% reported in the second quarter, reflecting typical seasonal patterns and increased investments.
Analysts remain cautiously optimistic. The consensus rating is Overweight, with an average price target of $147.18, which is 5.3% below the after-hours trading price. The median target is $161, implying a 3.6% potential gain. The stock's current valuation, at approximately 39.7 times projected adjusted earnings, suggests that the market is pricing in continued growth and backlog conversion, leaving little room for execution missteps.
Risks remain, including potential challenges in enterprise contract renewals, competitive pressures, and the ever-present risk of security breaches. However, the company's strong backlog growth and raised cash flow guidance signal robust demand for its identity solutions, particularly in the AI era. Investors will be watching closely for further details on sales efficiency and the stability of AI-driven contracts during the earnings call.
