Pegasystems (PEGA) Stock Forecast & Price Target

Pegasystems has demonstrated a robust financial performance, with backlog (RPO) increasing by 19% year-over-year to $1.8 billion, largely propelled by a significant cloud backlog of $1.29 billion, which constitutes 73% of the total backlog. In the third quarter, total revenue reached $381.4 million, exceeding estimates, and reflecting a 17% year-over-year growth driven by substantial increases in cloud revenue and term licenses revenue, which grew by 33% and 43%, respectively. Moreover, with the transition to a software subscription licensing model complete, free cash flow margins are improving, as evidenced by year-to-date free cash flow of $338 million, demonstrating strong execution and enhanced sales coverage in a market increasingly focused on digital transformation.

Pegasystems has provided revenue guidance for FY25 that falls approximately $7 million short of consensus expectations, indicating a lack of confidence in achieving 14% year-over-year growth. Additionally, the company's operating margins in Q3 were reported at 15%, which is below the anticipated 15.5%, raising concerns about its profitability. The firm is also facing multiple risks, including a decline in recurring revenue, variability in growth rates, and significant changes in competitive pricing, all contributing to a challenging outlook for the company's financial performance.