Okta, Inc. (OKTA) Deep Research Report: Overvalued vs. Opportunity in Identity-First Security?

Okta sits at the intersection of two powerful currents in enterprise IT: the shift to identity-first, Zero Trust security and the broader move to cloud and SaaS. As a pure-play identity provider, it offers focused exposure to what many CISOs now view as the core control plane of modern security architectures.

From our research, Okta has executed a genuinely impressive financial pivot. The company has moved from large GAAP losses to positive earnings and a multi-hundred-million-dollar free cash flow run-rate, all while maintaining high 70s gross margins and a sizable backlog of contracted revenue. According to the 10-K (2025), p.46, fiscal 2025 revenue reached $2.61 billion, up 15% year over year, with 98% coming from recurring subscriptions.

Yet this is far from a simple “compounder at a fair price” story. Growth has slowed into the low-to-mid teens, dollar-based net retention has slipped to 106%, competition from Microsoft Entra and other suites is intense, and Okta’s brand still carries scars from several high-profile security incidents. Layer on top a valuation of roughly 75x trailing earnings and about 100x EV/EBITDA, and new investors are not getting a wide margin of safety.

In this deep-dive, we walk through how we see Okta today: the quality of the franchise, the durability of its moat, the realities of its growth and profitability profile, and what the current valuation implies for forward returns.

Okta’s Investment Case: Quality Franchise, Narrow Margin of Safety

Okta’s core appeal is straightforward: identity is becoming the organizing principle of modern security. As organizations move from perimeter-based security to Zero Trust, who you are and what you’re allowed to access matters more than where you’re connecting from.

According to the 10-K (2025), p.46, Okta sells cloud-based workforce and customer identity solutions via the Okta and Auth0 platforms, mostly as multi-year SaaS subscriptions. Use cases span:

• Workforce identity: SSO, MFA, access management, lifecycle management
• Customer identity (CIAM): secure customer logins and identity orchestration
• Governance and security: identity governance, workflows, identity threat protection powered by Okta AI

Financially, the business has hit a key inflection point. The DEF 14A (2025), p.35 notes that FY25 delivered a small GAAP net profit, a 22% non-GAAP operating margin, and $730 million of free cash flow. The latest quarter, per the 10-Q (2025), pp.22–25, shows:

• Quarterly revenue: $742 million (+12% YoY)
• Gross margin: 77% overall; 80% on subscriptions
• Operating income: $23 million vs a $16 million loss a year earlier
• Net income: $43 million vs $16 million
• Nine-month revenue: $2.16 billion, with $172 million in net income

In other words, Okta has reached the “profitable growth” zone that many SaaS investors look for. The company is generating strong cash, has high gross margins, and is no longer burning capital to scale.

The catch is valuation. FMP’s discounted cash flow model pegs intrinsic value around $56.98 per share, versus a current price near $83.64, implying the stock trades about 47% above that FCF-based anchor. At ~75x trailing P/E and ~100x EV/EBITDA, investors are paying a quality premium that assumes the growth and margin story continues largely uninterrupted.

Our stance: this is a high-quality franchise that we’d rather buy on weakness or on clear evidence of a structural free cash flow acceleration, rather than at today’s elevated multiples.

Business Model and Revenue Quality: What Are You Actually Buying?

From an investor’s perspective, Okta has several characteristics we like in a SaaS business:

• Recurring, multi-year subscription revenue
• High gross margins
• Large and diversified customer base
• Significant contracted backlog

According to the 10-K (2025), p.4, Okta operates as a single global segment, delivering identity services via a multi-tenant cloud platform. Most revenue comes from:

• Access to its software on a subscription basis
• Ongoing support
• A smaller professional services and training component

As of January 31, 2025, Okta served over 19,650 customers across industries, with roughly 21% of revenue generated internationally, per the 10-K (2025), p.46 and 10-Q (2025), p.40. The customer base skews toward larger enterprises and institutions, which tend to sign multi-year commitments and integrate deeply.

Two metrics stand out on revenue durability:

• RPO (Remaining Performance Obligations): The 10-Q (2025), p.12 notes RPO of $4.29 billion, with just over half due within 12 months. That’s a substantial backlog providing visibility into near-term and medium-term revenue.
• Subscription mix: FY25 revenue was 98% subscription, according to the 10-K (2025), p.46–47. Professional services is small and runs at negative gross margins, but it supports deployments and stickiness.

From a quality-of-revenue standpoint, this is a robust setup. The question isn’t whether there is revenue; it’s what pace of growth is sustainable in a more competitive, macro-sensitive environment.

Growth, Net Retention, and the Reality of Deceleration

Okta’s headline growth is still solid, but investors need to recognize the clear deceleration. Revenue grew 15% in FY25 and 12% year over year in the most recent quarter, per the 10-K (2025), p.47 and 10-Q (2025), p.24. That’s a far cry from earlier years of 30–40%+ expansion, as historical data from Macrotrends revenue charts shows.

The more subtle but critical indicator is dollar-based net retention (DBNRR). The 10-Q (2025), p.29 reports DBNRR of 106%, down modestly. That means existing customers are still expanding their spend, but at a much slower rate than the 120%+ that many top-tier SaaS names enjoy in their prime.

What’s driving the slowdown?

• A mixed macro environment and elongated enterprise sales cycles, highlighted in the 10-Q (2025), pp.29–41.
• Competition and pricing pressure, particularly from Microsoft’s Entra suite and other hyperscaler/security bundles, as Okta warns in the 10-Q (2025), p.37.
• A natural maturing of the customer base as identity deployments reach more complete coverage.

For long-term investors, mid-teens growth with 100–110% DBNRR can still support a solid compounding story, especially with high free cash flow margins. But the days of hypergrowth are behind Okta. Buying at a premium multiple now means you’re underwriting a fairly narrow band of continued execution: sustained mid-teens growth, stable or improving DBNRR, and no major hits to the franchise.

If you want to evaluate how Okta’s growth pattern compares to a basket of other SaaS or security names you follow, DeepValue can run standardized deep research on 10+ tickers in parallel so you aren’t forced to choose just one or two names to investigate in depth.

Moat and Competitive Advantage: Strong Position, Tough Neighborhood

What underpins Okta’s moat?

Several elements support Okta’s competitive advantage:

• Integration network: The Okta Integration Network offers more than 7,000 pre-built integrations across SaaS apps, on-prem systems, and infrastructure providers. This breadth dramatically lowers deployment friction and increases stickiness, per the 10-K (2025), p.4.
• Security certifications: Okta holds SOC 2 Type II, ISO/IEC 27001:2022 and other ISO standards, FedRAMP authorizations, HIPAA alignment, and FIPS 140-2 validations, according to the 10-K (2025), p.9. That’s crucial for regulated industries and government work.
• Independent, cloud-agnostic posture: Okta isn’t tied to any single hyperscaler, which allows it to serve multi-cloud and hybrid environments as a neutral identity layer, as highlighted in the 10-K (2025), p.4.
• Auth0 and developer focus: With Auth0, Okta has a strong CIAM and developer-centric story, supporting customized identity flows and customer-facing applications, per the 10-K (2025), pp.7–8.
• Adjacencies via acquisitions: The acquisitions of Spera and the planned Axiom deal move Okta into security posture management and privileged access, advancing its role in the identity security stack, as reported in 10-K (2025), pp.7–8 and ComputerWeekly’s coverage of the Axiom acquisition.

Put together, Okta functions as an independent “identity control plane” across workforce and customer identity, supported by a rich ecosystem and compliance footprint.

Where is the moat under pressure?

The environment around Okta is intense and getting tougher:

• The 10-Q (2025), p.37 explicitly names Microsoft as its principal competitor, with larger vendors able to bundle identity at low or even negative margins.
• Microsoft’s Entra suite, AWS and other vendors are integrating identity features deeper into their clouds and security stacks, per InfoQ’s analysis of Microsoft Entra.
• Broader security players like Palo Alto and CrowdStrike are also leaning into identity-centric Zero Trust, creating feature overlap and budget competition, as reflected in comparisons on Macrotrends free cash flow per share charts.

The other key friction point is reputational. Okta has experienced several damaging security incidents, including breaches tied to internal tools and support systems. The 10-K (2025), p.42 and ComputerWeekly reporting on Okta’s breach history detail how these events have impacted perception. Okta has responded with a “Secure Identity Commitment” and high-profile security leadership efforts, discussed in ComputerWeekly’s interview with Okta’s CSO, but the burden of proof remains on execution.

Our read: Okta has real moat elements, but this is not an unassailable franchise. Pricing power and growth are constrained by hyperscaler bundling, and any further cybersecurity missteps could compress multiples fast. Identity may be central in Zero Trust, but investors should not assume that translates into unlimited pricing or market share.

Profitability, Free Cash Flow, and Balance Sheet Strength

One of the strongest parts of the Okta story is its recent profitability and free cash flow performance.

The DEF 14A (2025), p.35 highlights that:

• Non-GAAP operating margin reached 22% in FY25.
• Free cash flow hit $730 million.
• GAAP results swung from sizeable losses to a small net profit.

Quarterly data in the 10-Q (2025), pp.22–25 shows free cash flow now consistently running at hundreds of millions annually, supported by:

• 77% total gross margin
• 80% subscription gross margin
• Tightened operating expenses after several restructuring waves, as detailed in the 10-K (2025), p.81

On the balance sheet, Okta looks solid. The 10-K (2025), pp.81–84 and 10-Q (2025), pp.12,29 show:

• Around $2.36–2.46 billion in cash, cash equivalents, and short-term investments
• Reduction in convertible debt via repurchases and full settlement of 2025 notes
• Net Debt/EBITDA of about 3.91x and interest coverage of 27.75x, per FMP data cited in the one-pager

From a downside-protection lens, this is reassuring. The company has ample liquidity, can withstand macro wobbles, and isn’t reliant on capital markets to fund operations.

The main caveat is stock-based compensation (SBC). The 10-Q (2025), p.22 reports $410 million of SBC for the nine months ended October 31, 2025. That’s a significant drag on GAAP earnings and dilution for shareholders, even as non-GAAP metrics and FCF look strong.

For investors, the key question is whether Okta can sustain high-20s free cash flow margins as growth settles into the mid-teens and competitive pressures intensify. If yes, today’s valuation may prove reasonable. If margins stall or revert lower, the stock’s multiple could re-rate downward.

Is OKTA Stock a Buy in 2025–2026?

The obvious question for investors is where Okta sits on the spectrum from “quality compounder at a fair price” to “priced for perfection.”

Here’s how we frame it:

Positives:

• High gross margins (mid-to-high 70s).
• Sustained, positive free cash flow in the hundreds of millions.
• Large RPO backlog of $4.3 billion with over half due in 12 months.
• Clear exposure to secular identity and Zero Trust tailwinds, as outlined in the 10-K (2025), p.46 and TechRepublic’s infrastructure trends to 2026.

Headwinds:

• Growth decelerated to low/mid-teens.
• DBNRR only 106%, down from prior levels.
• Intense competition from Microsoft Entra and other platforms, per the 10-Q (2025), p.37.
• Security-incident history and ongoing reputational sensitivity, highlighted in the 10-K (2025), p.42 and Wikipedia’s Okta entry.
• High SBC and limited margin of safety at current valuation.

The FCF-based DCF from FMP at $56.98 per share provides a useful anchor. With the stock trading around $83.64, the market is already assuming optimistic—but not implausible—scenarios: sustained mid-teens revenue growth and high-20s free cash flow margins over the medium term.

Our internal “watch list” framing from the report is:

• A material pullback toward or below the ~$60 DCF anchor, or
• Clear evidence that FCF is structurally inflecting above current assumptions (e.g., sustained high-20s FCF margins with mid-teens growth),

would justify moving closer to a constructive “potential buy” stance. Conversely, further multiple expansion without a matching improvement in FCF growth would tilt this story toward a potential trim or sell for valuation-sensitive investors.

In plain language: we see Okta as a quality name to have on your watchlist and to buy on meaningful weakness, not a table-pounding bargain at current prices.

Will Okta Deliver Long-Term Growth in Identity-First Security?

From a 2–5 year lens, there is a credible path for Okta to keep compounding:

• Identity is central to Zero Trust, and the market is far from mature. Industry coverage like TechRepublic’s piece on slow Zero Trust adoption suggests that only a minority of enterprises will reach mature Zero Trust by 2026.
• Okta’s roadmap focuses on deeper AI-driven identity capabilities, governance, and privileged access, as described in the 10-K (2025), pp.7–9,46 and the Axiom acquisition coverage.
• Global expansion and flagship CIAM wins (like Okta’s integration with Singapore’s Singpass national ID, covered by ComputerWeekly) offer additional runway.

But the assumptions need to be realistic. Our report stresses that sustaining mid-teens growth and high-20s FCF margins requires:

• Stable or improving DBNRR and strong RPO conversion
• No major security incidents
• Competitive resilience against Microsoft and other hyperscalers
• Continued execution on cost discipline and product differentiation

The company itself is candid about risks. The 10-Q (2025), p.37 warns that Okta may incur future losses again and notes macro-driven slowdowns in expansion among existing customers (see 10-Q (2025), p.29). Combined with elevated SBC and a history of security incidents, we think it’s prudent to underwrite the long-term with some conservatism rather than blue-sky scenarios.

If you’re looking to systematize this type of assumption-checking across your portfolio—tying revenue trends, SBC, competitive pressures, and valuation into one framework—Read our AI-powered value investing guide for a deeper dive into how we leverage automation to make this repeatable.

Key Risks and What to Monitor as a Shareholder

For existing or prospective shareholders, we’d track a concise risk dashboard:

1. Security and Trust

What to watch:

• Any new material breaches or incidents disclosed in SEC filings or credible security press.
• Progress and milestones under the Secure Identity Commitment, as covered in the 10-K (2025), p.42 and ComputerWeekly’s CSO interview.

Why it matters:

• A major incident affecting core services or customer data could swiftly damage Okta’s core value proposition and compress valuation multiples.

2. Competitive Dynamics

What to watch:

• Product and pricing moves from Microsoft Entra and other hyperscalers, as followed by InfoQ’s reporting on Entra.
• Evidence of large customers standardizing on competing identity stacks at Okta’s expense, hinted at in the 10-Q (2025), p.37.

Why it matters:

• Bundling at low margins may cap Okta’s pricing power and slow upsell, pressuring DBNRR and growth.

3. Customer Metrics and Growth Quality

What to watch:

• Dollar-based net retention trends and new logo additions, as reported in the 10-Q (2025), p.29.
• RPO growth and conversion into revenue, per the 10-Q (2025), p.12.

Why it matters:

• Sustained DBNRR deterioration below the current 106% along with slowing customer adds would be a clear demand red flag.

4. Profitability and SBC

What to watch:

• Trajectory of non-GAAP operating margin and free cash flow against management guidance in the 10-Q (2025), pp.20,27.
• SBC levels relative to free cash flow, as shown in the 10-Q (2025), p.22.

Why it matters:

• If margins roll over or SBC continues at very high levels, equity holders bear the dilution and valuation support weakens.

5. Capital Structure and Liquidity

What to watch:

• Treatment of the 2026 convertible notes now classified as current liabilities, and any refinancing or repayment actions, per the 10-Q (2025), pp.12,29.

Why it matters:

• While liquidity is currently strong, capital structure decisions can affect equity risk and flexibility.

How We’d Approach OKTA as Value-Oriented Investors

Putting it all together, our approach to Okta looks like this:

• We respect the quality of the franchise: strong gross margins, recurring revenue, large RPO, and a credible position in a structurally important part of the security stack.
• We acknowledge real risks around competition, security reputation, SBC, and slower growth.
• We see limited margin of safety at current prices given the ~47% premium to an FCF-based DCF and valuation multiples that assume continued clean execution.

Practically, that translates into:

• Watchlist / Hold on Strength: If you already own the stock from lower levels, we’d be inclined to hold rather than chase additional shares, while closely watching growth, DBNRR, and security posture.
• Buy on Meaningful Weakness: A pullback closer to the mid-$60s or lower—especially if it comes without a fundamental deterioration—would start to look more interesting, given the free cash flow profile.
• Avoid at Elevated Multiples Without FCF Upside: If the multiple expands further without clear evidence that free cash flow is structurally stepping up beyond current assumptions, the risk/reward skews unfavorably.

If you want to run this same style of analysis across your watchlist—taking a stack of 10-Qs, 10-Ks, industry reports, and building a standardized thesis and risk dashboard—

Sources

• 10-K (2025) – Okta Annual Report, filed March 5, 2025
• 10-Q (2025) – Okta Quarterly Report for period ended Oct 31, 2025, filed Dec 3, 2025
• 8-K (2025) – Okta Current Report, filed Dec 19, 2025
• DEF 14A (2025) – Okta Proxy Statement, filed May 8, 2025
• Okta, Inc. – Wikipedia Company Overview
• TechRepublic – Enterprise IT Infrastructure Trends to 2026
• TechRepublic – Why Companies Are Slow to Embrace Zero Trust Protocols
• InfoQ – Zero Trust and the Microsoft Entra Suite
• ComputerWeekly – Identity-First Security as a Building Block for Effective Zero Trust
• ComputerWeekly – Shadow IT Use at Okta Behind Series of Damaging Breaches
• ComputerWeekly – The Security Interviews: David Bradbury, CSO, Okta
• ComputerWeekly – Okta Makes AI Identity Play With Axiom Acquisition
• ComputerWeekly – Okta Integrates With Singapore’s National Digital ID System (Singpass)
• Macrotrends – Okta Revenue History
• Macrotrends – Okta Free Cash Flow
• Macrotrends – Okta Free Cash Flow Per Share
• Macrotrends – Okta Long-Term Debt
• FMP – Okta Valuation Metrics, Price, DCF Estimate, and Multiples