Pegasystems (PEGA) Stock Forecast & Price Target

Pegasystems reported a robust year-on-year growth in backlog (RPO), increasing by 19% to $1.8 billion, with cloud backlog accounting for 73% of the total, demonstrating strong demand for its offerings. The company's total revenue for Q3 reached $381.4 million, surpassing expectations and reflecting a 17% increase year-on-year, primarily fueled by significant growth in cloud and term licenses revenue. Additionally, the successful transition to a software subscription licensing model has led to improved free cash flow margins, with year-to-date free cash flow amounting to $338 million, indicating strong financial health and operational efficiency.

Pegasystems has issued FY25 revenue guidance of $1,700 million, which is approximately $7 million below consensus expectations, indicating only a 14% year-over-year growth. The company reported Q3 operating margins of 15%, falling short of the anticipated 15.5%, alongside a continued expected decline in term licenses, particularly in Q4. Additional risks further contribute to a negative outlook, including unfavorable macroeconomic conditions, a potential drop in renewal rates for recurring revenue, significant pricing competition, and an unpredictable revenue performance heavily reliant on its licensing business.