What Happened: Shares of enterprise workflow software provider Pegasystems (NASDAQ:PEGA) jumped 33.2% in the morning session after the company reported fourth-quarter results with revenue exceeding Wall Street's estimates, driven by outperformance in its subscription license segment ($207.6 million of revenue vs estimates of $146.7 million). Gross margin also improved significantly during the quarter. Looking ahead, its revenue, EPS, and free cash flow guidance for full-year 2024 also beat expectations (specifically, free cash flow is projected to be $350 million in 2024 vs. estimates of $258 million), with the company forecasting 11% annual contract value growth. Pegasystems reiterated its goal of exiting the year (Q4 2024) having achieved the Rule of 40 (revenue growth plus free cash flow margin greater than or equal to 40%).
Zooming out, this was a strong quarter that should have shareholders cheering. There has been skepticism in the last few years around how good the Pegasystems platform is technologically compared to competitors, and these results put a dent in the theory that the company's demand is weak and its business model is broken. One quarter won't tell you everything, but it's certainly a good start to a change in the narrative around the company.
Is now the time to buy Pegasystems? Find out by reading the original article on StockStory.
What is the market telling us: Pegasystems's shares are quite volatile and over the last year have had 9 moves greater than 5%. But moves this big are very rare even for Pegasystems and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 7 months ago, when the stock dropped 5.5% on the news that the company reported disappointing second-quarter results that missed analysts' revenue, adjusted operating income, and earnings per share (EPS) expectations. More specifically, subscription revenue missed by a pretty meaningful 7%. This marked the second consecutive quarter where both total revenue and subscription revenue all missed by more than 4%.
Management noted that "Our low-code platform for AI-powered decisioning and workflow automation uniquely empowers clients to embrace emerging trends like generative AI and, at the same time, reduce costs and improve customer engagement." The commentary was bullish, but so far, these tailwinds were yet to be seen in the financial performance.
Pegasystems is up 42.7% since the beginning of the year. Investors who bought $1,000 worth of Pegasystems's shares 5 years ago would now be looking at an investment worth $1,165.
