By Shares of Pegasystems Inc. (NASDAQ: PEGA) jumped 12.87% to $64.39 in trading on Wednesday after the software company reported better-than-expected third-quarter earnings and revenue, driven by strong demand for its AI-powered cloud solutions and continued growth in annual contract value.
Earnings and revenue exceed expectations
For the quarter ended September 30, Pegasystems reported earnings per share (EPS) of $0.24 on revenue of $381.4 million, compared with a loss per share of $0.08 and revenue of $325 million in the same period last year.
On an adjusted basis, the company delivered EPS of $0.30, up from $0.19 a year earlier and above Wall Street’s consensus estimate of $0.20, according to data compiled by LSEG.
Revenue rose 17.3% year over year, surpassing analyst expectations of $345.2 million.
The company also posted net income of $43.36 million and free cash flow of $52.3 million, beating the projected $36.4 million.
Pegasystems’ operating margin reached 15.2%, outperforming the expected 12.6%, reflecting the company’s continued focus on profitability and operational efficiency.
The company’s Annual Contract Value (ACV), a key measure of recurring revenue, grew 14% year over year to $1.557 billion, highlighting continued strength in its subscription-based business model.
Strong cloud growth and AI strategy drive momentum
The company’s Pega Cloud ACV rose 27% year over year to $815 million, slightly below the 28% growth recorded in the previous quarter but still ahead of consensus estimates of $763 million.
The result underscores Pegasystems’ success in expanding its cloud offerings as clients increasingly migrate to AI-integrated digital transformation platforms.
Chief Executive Officer Alan Trefler attributed the company’s performance to its differentiated AI strategy, which he said continues to resonate with clients, prospects, and partners.
Pegasystems has positioned itself as a key player in automating workflows and decision-making using AI-driven software solutions.
The company’s robust quarterly performance also suggests that enterprises remain committed to investing in automation and AI technologies, even amid a broader slowdown in IT spending across certain sectors.
Analyst ratings and market reaction
The strong earnings report sparked renewed investor confidence, with Pegasystems shares climbing sharply in trading.
Up to the previous close, the stock had already gained 22.4% so far this year, and analysts remain optimistic about its long-term prospects.
According to LSEG data, the average analyst rating on Pegasystems is “buy”, with 12 analysts recommending “strong buy” or “buy”, two rating it “hold,” and none advising to sell.
The median 12-month price target for the stock is $65.00.
Investment firm Citizens reaffirmed its Market Outperform rating and $78.00 price target, citing strong fundamentals and execution.
While analysts’ earnings forecasts had edged slightly lower in recent months, with the mean estimate down 3.7% in the last quarter, Pegasystems’ latest results and upbeat commentary appear to have reversed sentiment.
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