Pegasystems (PEGA) Stock Forecast & Price Target

Pegasystems recorded a robust year-on-year backlog growth of 19%, amounting to $1.8 billion, driven primarily by a 73% contribution from cloud backlog, which underscores strong demand for its Pega Infinity platform among enterprise clients. The company's total revenue for Q3 reached $381.4 million, significantly surpassing estimates and reflecting a 17% increase from the previous year, with notable growth in both cloud revenue and term licenses. Improved sales execution has led to higher win rates, while free cash flow margins continue to enhance following the completion of its software subscription licensing program, indicating a solid foundation for future growth.

Pegasystems has provided FY25 revenue guidance of $1.7 billion, which is approximately $7 million below consensus expectations, indicating a lower-than-expected year-over-year growth of 14%. Additionally, the company's operating margins for Q3 were 15%, falling short of the anticipated 15.5%, suggesting challenges in maintaining profitability. Compounding these issues are multiple risks, including a decline in term licenses, unfavorable macroeconomic conditions, and an unpredictable revenue model, which collectively contribute to a negative outlook for Pegasystems's stock.