Okta Stock Plunges: Why Investors Dumped Shares Despite a Strong Earnings Beat

Wall Street's reaction to Okta's latest quarterly report was a masterclass in looking a gift horse in the mouth. The identity management giant smashed expectations, yet its stock got hammered. Welcome to the market, where beating the numbers sometimes just isn't enough.

The Earnings vs. Expectations Paradox

The figures told a story of strength. Revenue climbed, earnings per share topped analyst forecasts, and guidance held firm. By the traditional playbook, this should have been a rally. Instead, traders hit the sell button. The disconnect highlights a market increasingly obsessed with future narratives over present performance—a classic case of 'what have you done for me lately?'

Digging Beneath the Headline Numbers

So what spooked the crowd? Scrutiny inevitably shifted from the top-line beat to the finer details. Commentary on customer growth, competitive pressures, or long-term margin projections can often whisper warnings that loud earnings shouts drown out. In today's hyper-sensitive trading environment, even a hint of deceleration in a key metric is enough to trigger a sell-off. It's the financial equivalent of praising a chef's main course while fretting over the dessert menu.

The Bigger Picture for Tech Investors

This move isn't just about Okta. It's a symptom of a market that rewards flawless execution and punishes anything less. For high-flying tech stocks, 'good' is frequently the new 'bad.' Investors have priced in perfection, leaving no room for error or even ambiguity. When every basis point of growth is microscopically analyzed, strong results can still disappoint sky-high expectations.

One cynical take? The market often behaves like a moody patron at a Michelin-star restaurant: thrilled by the amuse-bouche, then furious the soufflé took twelve minutes instead of ten. Okta served a solid meal, but the diners wanted a feast for the ages. For now, the stock price is paying the bill.

TLDR

• Okta beat Q3 estimates with 82 cents EPS versus 76 cents expected and revenue of $742 million versus $730 million expected
• Stock fell over 3% after hours because the company did not provide fiscal 2027 guidance, breaking from previous practice
• Q4 guidance came in strong with expected revenue of $748-$750 million and EPS of 84-85 cents, both ahead of estimates
• BMO Capital lowered price target from $112 to $90 due to sector-wide multiple compression while keeping Market Perform rating
• CEO says AI agent opportunities haven’t been fully reflected in results yet but could exceed core market over next five years

Okta reported earnings that crushed Wall Street expectations on Tuesday. But investors weren’t impressed.

$OKTA (Okta) #earnings are out: pic.twitter.com/Zt2JbMH7ch

— The Earnings Correspondent (@earnings_guy) December 2, 2025

The identity management company posted Q3 earnings of 82 cents per share on revenue of $742 million. Analysts had expected 76 cents per share on revenue of $730 million.

Despite the beat, shares fell more than 3% in after-hours trading. The culprit? Okta broke with tradition and didn’t provide preliminary guidance for fiscal 2027.

Okta, Inc., OKTA

Finance chief BRETT Tighe blamed seasonality in the fourth quarter. He said giving guidance would require “some conservatism.” That explanation didn’t satisfy investors who had grown accustomed to the longer-term outlook.

The company’s Q3 performance showed healthy growth across the board. Revenues climbed almost 12% from $665 million in the year-ago period.

Net income surged 169% to $43 million, or 24 cents per share. That compared to $16 million, or breakeven, a year earlier.

Subscription revenues grew 11% to $724 million. Analysts had estimated $715 million.

AI Agents Could Expand Market

CEO Todd McKinnon talked up the company’s AI prospects in a CNBC interview. Okta launched a capability during Q3 that lets businesses build AI agents and automate tasks.

McKinnon said the upside from AI agents hasn’t been fully reflected in results yet. He believes the opportunity could exceed Okta’s Core total addressable market over the next five years.

“It’s not in the results yet, but we’re investing, and we’re capitalizing on the opportunity like it will be a big part of the future,” McKinnon said.

Strong Q4 Outlook and Backlog Growth

For the current quarter, Okta expects revenues between $748 million and $750 million. The company also forecast adjusted earnings of 84 cents to 85 cents per share.

Both figures came in ahead of analyst expectations. Wall Street had penciled in $738 million in revenues and 84 cents EPS for Q4.

Returning performance obligations, which represent Okta’s subscription backlog, ROSE 17% from a year ago. The figure hit $4.29 billion and beat the $4.17 billion StreetAccount estimate.

Analyst Action and Sector Trends

BMO Capital responded to the earnings by lowering its price target on Wednesday. The firm cut its target to $90 from $112 while keeping a Market Perform rating.

BMO acknowledged Okta beat expectations on all key metrics and raised annual guidance. The firm modestly increased its fiscal 2026 estimates.

But BMO cited sector-wide multiple compression as the reason for the lower price target. The firm noted Okta’s management provided current remaining performance obligations guidance for January that was “a touch disappointing.”

BMO believes the guidance is likely conservative and provides a reasonable starting point for fiscal 2027 revenue growth projections.

This year has been active for cybersecurity companies. Major acquisition deals came from Palo Alto Networks and Google, and several new IPOs hit the market.

Okta shares have gained about 4% this year. The stock closed at $82.02 before the after-hours decline on Tuesday.