What happened

Okta (OKTA 1.72%) investors had a great week. The cybersecurity specialist's shares jumped 35% through Thursday trading, according to data provided by S&P Global Market Intelligence. That's compared to a 1.3% increase in the wider market. The stock remains in deeply negative territory for the year, though. It is down nearly 70% since the start of 2022.

This week's rally was sparked by a surprisingly strong third-quarter earnings report.

So what

Okta announced late Wednesday that Q3 sales rose 37% to $481 million. That result easily surpassed the company's late August forecast of sales landing between $463 million and $465 million. Okta executives said the company is making progress in its integration of the recently acquired Auth0 business.

"We're pleased with our third quarter results and the early traction of our refined go-to-market strategy," CEO Todd McKinnon said in a press release.

Investors were even happier to see that Okta took a big step toward profitability. Net losses shrank to less than $1 million on a non-GAAP basis compared to $10 million a year ago. Okta generated positive free cash flow, too.

Now what

The best news is that Okta now sees net losses moderating at a much quicker pace over the next several months thanks to cost cuts. Operating loss will likely land at just $40 million, executives project, rather than the over $100 million loss management had forecast a few months ago.

Still, the stock remains risky given its exposure to slowing IT spending. Okta is already seeing signs of pressure on the industry, executives said in a conference call, which is making it harder to win new clients.

The long-term outlook is bright for this software-as-a-service stock, assuming Okta can steadily improve profit margins while gaining market share. But the next several quarters could be volatile thanks to weakening economic growth rates around the world.