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With a market capitalization of $18.3 billion, Okta (OKTA) is a top provider of identity and access management solutions, helping businesses securely connect users to applications and devices.
Recently, Bank of America analyst Madeline Brooks reaffirmed a “Sell” rating on Okta stock, citing structural challenges in the company’s competitive landscape and market growth prospects. Okta reported impressive results for the fourth quarter of fiscal 2025, beating consensus estimates. The stock is up nearly 38% in the year to date, far outpacing the S&P 500 Index ($SPX).
Let’s look at what has made Bank of America cautious about Okta’s future trajectory, despite Wall Street’s overall rating of “Moderate Buy.”
Okta Reports a Strong End to Fiscal 2025
Okta reported robust fiscal fourth quarter results, surpassing both revenue and earnings projections. The company posted adjusted earnings of $0.78 per share, a 23.8% increase from the prior-year quarter, on revenue of $682 million, marking 13% year-over-year growth. Notably, new offerings like Okta Identity Governance (OIG), Identity Security Posture Management, and Identity Threat Protection with Okta AI, among others, accounted for more than 20% of Q4 bookings. Since its inception two years ago, OIG has attracted over 1,300 customers, totaling more than $100 million in annual contract value.
A key metric, remaining performance obligation (RPO), or subscription backlog, stood at $4.2 billion in the quarter. cRPO, or the revenue to be recognized over the next 12 months, increased 15% to $2.2 billion. Total revenue for fiscal 2025 increased 15% to $2.61 billion, boosted by a 16% increase in subscription revenue. Adjusted earnings increased by 75.6% to $2.81 per share in fiscal 2025.
Demand for workforce and customer identity products remained strong, and new product offerings began to make a significant impact. Okta generated $730 million in free cash flow this year, with a 26% margin expected in fiscal 2026. Motivated by this performance, the company now expects revenue to grow by 9% to 10%, while earnings may increase by 12% to 14% in fiscal 2026.
BofA Has Concerns
With a strong fiscal year-end in 2025 and a disciplined approach to growth and efficiency, Okta is well-positioned for long-term success in the evolving identity security market. However, Brooks believes that the fourth quarter performance was primarily due to effective execution and management’s confidence in the company’s strategic direction, and that this growth may not be sustainable. The company’s conservative outlook raises concerns about the true sustainability of its growth trajectory, particularly given competitive pressures in the identity and access management (IAM) sector.
Okta operates in a rapidly changing and competitive industry, up against established technology giants like Microsoft (MSFT), Oracle (ORCL), and Google (GOOGL), as well as emerging security-focused companies like Twilio (TWLO) and MongoDB (MDB). Brooks cites structural concerns as a key reason for maintaining a bearish outlook on the stock. Intense competition and potential pricing pressures may limit Okta’s ability to maintain its current growth rate, justifying a cautious approach.
Given these concerns, Brooks did not raise the target price, leaving it at $75, which Okta stock has already surpassed.
Is OKTA a Buy, Hold, or Sell on Wall Street?
While the Bank of America analyst is bearish on the stock, overall Okta stock is a “Moderate Buy” on Wall Street. Of the 37 analysts covering the stock, 18 analysts rate it a “Strong Buy,” with two rating it a “Moderate Buy,” 16 rating it a “Hold,” and one saying it is a “Moderate Sell.” The average target price of $115.47 implies upside potential of 6% from current levels. Its high target price of $140 suggests the stock can rally as much as 28% over the next 12 months.
Analysts who cover the stock expect revenue and earnings to grow by 9.7% and 14.1%, respectively, in fiscal 2026. Revenue and earnings might increase by 9.7% and 10.2% in fiscal 2027. Okta stock is currently trading at 33 times forward earnings, making it more expensive than its industry peers. However, this premium valuation suggests that investors expect the company to grow in the near future.
The Bottom Line on Okta Stock
The company’s strong financial performance, combined with strategic initiatives and a focus on AI, bodes well for future growth. However, investors should consider the competitive environment and the need for ongoing innovation to maintain this momentum.
While I don’t concur with Bank of America’s bearish stance on the stock, starting with a small stake in OKTA and monitoring its progress could be a wise decision now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
