Why Okta Stock Lost 16% in August

Actions of Okta (OKTA -0.76%) pulled out last month after the cloud-based identity software specialist posted disappointing results in its fiscal second quarter 2025 earnings report towards the end of the month. Okta’s growth rate has slowed substantially since the end of the pandemic, following challenges with Auth0 integration and multiple security breaches.

Second-quarter results beat nominal expectations, but showed the company’s growth is expected to slow. Shares ended the month down 16%, according to data from S&P Global Market Intelligence.

As you can see from the chart below, the earnings report was responsible for the entire decline after an earlier sell-off driven by the broader market pullback.

OKTA data by YCharts.

Okta faces several doubts

Okta is an independent leader in its cybersecurity niche, focused on ensuring that employees and customers can safely and seamlessly connect to the applications they need. However, its growth story has faded in recent years.

In the second quarter, revenue rose 16% to $646 million, beating estimates of $632.9 million. Current remaining performance obligations (cRPO), an indicator of arrears over the next year, rose 13% to $1.995 billion, which could point to a slowdown in future growth.

In conclusion, the company hit a major milestone, achieving profitability based on generally accepted accounting principles (GAAP) of $29 million, even as 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 estimate of $0.61. CEO Todd McKinnon noted that the company’s expanded product offering contributed to record profitability and strong cash flow.

Image source: Getty Images.

Growth is expected to slow

What seemed to drive investors away was the company’s guidance. It estimated revenue of $648 million to $650 million, an 11% growth rate, which was ahead of consensus but implied essentially flat sequential growth from the second quarter.

Okta also reported cRPO growth of just 9%, indicating a possible slowdown in demand. The bottom line sees adjusted earnings per share of $0.57-$0.58, slightly above estimates of $0.55. Wall Street analysts have roundly cut price targets and valuations in some cases because of the disappointing guidance.

While Okta has a history of providing conservative guidance, the selloff seems understandable. The company will need to stem the decline in revenue growth and continue to increase profitability for the stock to rebound.