Pegasystems (PEGA) Stock Forecast & Price Target

Pegasystems has shown strong financial momentum, with a 19% year-over-year growth in backlog, reaching $1.8 billion, largely fueled by robust cloud backlog growth to $1.29 billion, which constitutes 73% of total backlog. In Q3, the company reported total revenue of $381.4 million, surpassing estimates and reflecting a 17% year-over-year increase, driven predominantly by significant growth in cloud and term license revenues, which rose 33% and 43% respectively. The successful completion of the software subscription licensing program has led to improved free cash flow margins, with year-to-date free cash flow accumulating to $338 million, indicating strong operational efficiency and financial health.

Pegasystems has issued FY25 revenue guidance of $1,700 million, which falls approximately $7 million short of consensus expectations, translating to a projected 14% year-over-year growth that may not meet market demands. The company reported Q3 operating margins of 15%, underperforming against the forecast of 15.5%, suggesting challenges in maintaining profitability. Additionally, several risks, including a decline in term licenses, unfavorable macroeconomic conditions, and high variability in annual contract value growth rates, contribute to a negative outlook on the company's financial stability and future growth prospects.