rewrite this title Can Okta Ride the Generative AI Wave to New Growth? – Nanalyze

Unless you live under a cultural rock like we do, you probably know the latest bloated blockbuster movie in the Mission Impossible series just came out. There is a certain appeal in the sheer absurdity of the stunts – and we’re not even talking about the ones involving exploding cars or jumping out of airplanes. Each installment involves feats of digital deception and identity subterfuge that make cybersecurity seem almost sexy. In the real world (as mundane as it is) businesses face their own cyber challenges – malicious actors, rogue AI agents, and the ever-present threat of credential compromise.

The nearly impossible mission of cybersecurity companies like Okta (OKTA) is to ensure only the right people (or bots) can securely access applications, data, and systems. The identity and access management (IAM, not to be confused with IMF) business is not a big budget Hollywood espionage caper, but it is no less lucrative. Look no further than Okta’s stratospheric growth over the last five years. Revenue has tripled, from $835 million in 2021 to $2.6 billion in 2025. 

But the script is under a heavy rewrite: Okta revenue growth is slowing significantly yet the company finally turned the corner on profitability. It has simplified its pricing scheme, moving from an a la carte menu of products to a tiered subscription model, while net revenue retention (NRR) continues its slow slide. The company also recently shifted its sales strategy, and more significantly, is focusing more on sustainability and profitability over the ye olde growth-at-all costs mentality. Grab your popcorn while we dig into the latest numbers and moves from this software-as-a–service (SaaS) company. 

Okta Turns a Profit

Let’s start at the top: Okta hauled in $2.6 billion in 2025 – the company operates on its own weird fiscal-year timeline – which was up more than 15% the year before. That’s much better than the estimated 10% growth originally predicted. However, management is once again going conservative for 2026, citing ye olde macroeconomic headwinds, guiding to just 9-10% growth in 2026. Hot-off-the-presses Q1-2026 results clocked in a bit better than that at 12% year-over-year growth but with nominal quarter-to-quarter growth.

We’re also told that net retention rate has fallen to 106% which means existing customers aren’t spending so much over time. Doesn’t sound like the “hunter-farmer” sales team configuration we wrote about last year about is coming to fruition.

While we normally focus on revenue growth as a key metric, it’s hard to ignore the big turnaround in profitability. In 2025, Okta recorded net income of $28 million, compared to a net loss of $355 million the prior year. Q1-2026 is even better, with the company pocketing $62 million, compared to a net loss of $40 million a year ago. A few factors are responsible for this achievement. Management got mean and lean with operating costs, while vastly increasing cash flow. Part of that streamlining involved laying off about 15% of its workforce in the last 24 months or so. 

In addition, sales staff are now focused exclusively on specific segments, including teams devoted to the company’s two platforms – Okta and Auth0. The former is the OG platform designed for organizations to manage access for internal users (workforce identification), while the latter is marketed to developers building customer-facing applications with IAM requirements. Investors keen on Okta may recall that the company acquired Auth0 for a cool $6.5 billion in an all-stock deal back in 2021-22. While Auth0 still operates as an independent business unit, the financials are integrated, so we don’t have full transparency into return on investment (ROI). The business reportedly has $1 billion annual recurring revenue, so presumably it accounts for about 40% of total revenue. Regardless, Okta has apparently pulled off a pretty significant feat by cutting operating costs and becoming profitable within just a few years of a major merger. 

Shift in Subscription Model

Perhaps the most recent significant change at the cybersecurity company is how it monetizes the Okta platform. In Q1-2026, Okta moved away from its previous a la carte approach – where customers would buy each product separately – and introduced suite-based pricing. Customers can now select from bundled packages that group several Okta products together, into what’s generally referred to as good/better/best tiers. Management maintains this new approach makes it simpler for customers to get a range of IAM tools in a more unified solution, which is easier to manage and can lower overall costs. For Okta, bundling theoretically drives more cross-selling and deepens customer relationships. Auth0 already employs a similar tier-based model.

Two products, in particular, have become central to Okta’s upsell and cross-sell strategy. Okta Identity Governance (OIG) automates identity lifecycle and compliance, while Okta Privileged Access (OPA) manages and secures privileged accounts, including nonhuman alien identities such as service accounts, machines, and tokens. Both are now bundled into Okta’s higher-priced tiers, potentially driving a 30-40% uplift in annual contract value (ACV). For instance, more than 1,300 customers have contributed more than $100 million in ACV since the launch of OIG a couple of years ago. 

Management shared a few significant wins and upsells, mainly around the Okta workforce platform. For example, a U.S. government customer purchased a bunch of products to replace a nonfunctional lifecycle management solution that forced whatever federal employees still remain to conduct tasks manually. In an example of an upsell, a U.S.-based grocery store chain invested further into Okta’s unified security platform with OPA, which will allow the customer to “manage user and admin access with fast time to value, and achieve cloud-native protection for its modern infrastructure.” Whatever that means. None of the examples included hard ROI figures, unfortunately.

Downsides to Upselling

Despite these successes, Okta continues to face macroeconomic headwinds and slower mid-contract expansion, particularly in older customer cohorts, meaning not everyone is eager to upgrade or add more users. NRR has declined for four consecutive quarters, and while management expects this to “travel in a range plus or minus a little bit from here,” it’s way lower than we expected it to go. Last year we were told to expect it to float between 109% and 113%. Management says future growth will depend more on selling additional products to existing customers than on seat expansion (more users per contract), so NRR is a critically important metric to be watching. In addition, although Okta’s public sector business is a strength, the company is cautious about near-term federal demand, partly due to you know what.

In the bigger picture, Okta is chasing what it estimates to be an $80 billion total addressable market (TAM), partly built on the calculation of every company in the world with more than 250 employees adopting all of its solutions. That’s probably some pretty optimistic calculus, but certainly there is plenty of market share to be had, even competing against the 800-pound gorilla (aka, Microsoft). That’s a growing concern we have. That aggro “Okta beats Microsoft” slide they whip out every quarter almost seems like an attempt to deflect from the threat. When any concerns about Microsoft stealing market are raised, just point to your solution being better. “Better” doesn’t matter sometimes.

Certainly, the threat of identity-related cyberattacks isn’t going anywhere. According to a 2024 survey of 2,400 identity-related cybersecurity experts and decision-makers by CyberArk, a key competitor to Okta, 93% of organizations have experienced two or more breaches due to identity-related cyberattacks. Trust no one.

Can Okta Generate Alpha with AI?

And the cyber spy-vs-spy war is only going to get worse with generative AI. The threat is not just from AI-augmented malware and phishing tools, but also from the exponential number of machine identities that can be breached. In response, Okta has launched a broad set of AI and genAI initiatives designed to secure both human and non-human identities. For instance, the company’s platform now incorporates advanced AI-driven features like Identity Threat Protection with Okta AI, which continuously analyzes user behavior and device signals to detect and respond to threats in real time. On the developer side, Okta’s Auth0 platform introduced Auth for GenAI, which lets app builders securely integrate AI agents into their products.

Many of these moves reflect the company’s scramble to take the lead on the rapidly expanding universe of AI-driven automation, where the number of non-human identities is expected to dwarf human users in the coming years. The hope is that new revenue streams emerge as customers seek solutions to manage and secure the explosion of these digital agents, APIs, and machine-to-machine interactions. The challenge, of course, is figuring out exactly how to monetize AI. Indeed, management acknowledged that the industry lacks standardized ways to identify, track, and charge for new forms of digital identity like AI agents.

During the company’s 2025 earnings call, Todd McKinnon, co-founder, chairman and CEO of Okta, explained that while his cybersecurity firm already manages a significant volume of machine-to-machine authentication access through its platforms, the rise of agentic AI is “machine identity on steroids,” with the potential for two orders of magnitude more entities needing secure authentication. Okta’s vision is to monetize AI on “both sides” by serving organizations building AI agents as well as those deploying and using them. The potential payoff for Okta is substantial: If the number of machine users will soon dwarf human users, as McKinnon speculates, then monetizing these non-human identities and interactions could significantly boost Okta’s revenue once it figures out a pricing model.

A New Metric to Monitor

Our recent piece on ServiceNow (NOW) introduced a new financial metric called remaining performance obligations (RPO). Simply put, RPO represents revenue that is contractually obligated to be paid, but hasn’t been paid yet. In other words, this more holistic metric provides a leading indicator of what to expect in the next coming years. If RPO is growing, revenues will eventually follow. The metric is reported on a “current” and “non-current” basis with the former being recognized in the next 12 months and the latter anytime after (the average duration of an Okta contract is around 2.5 years).

Based on the above, at the end of last year they had already locked in 79% of their guidance for this year in the form of deferred revenues. If RPO starts to show signs of a consistent decline, then you can be sure revenues will eventually follow. We’ll be watching this closely alongside NRR in the coming months.

Conclusion

It might sound cliche, but Okta is a company in transition. It is finally profitable but growth is slowing – the typical tradeoff as a SaaS firm matures. The shift to a new revenue model is strategic but risky, especially in an economic environment where customers are more cautious. The plunge deeper into genAI, with a not fully formed scheme on how to monetize AI agent secret identity, is another high-risk, high-reward venture. Okta stock is currently at a simple valuation ratio (market cap/annualized revenue) of just under 7 – about the same as our catalog average. Average valuation for slowing growth. And if they can’t manage double-digit growth this year, we’re putting them on double secret probation.