Pegasystems (NASDAQ:PEGA) Reports Upbeat Q2 But Stock Drops 11%

Yahoo

23-07-2025

Enterprise workflow software provider Pegasystems (NASDAQ:PEGA) beat Wall Street's revenue expectations in Q2 CY2025, with sales up 9.5% year on year to $384.5 million. Its non-GAAP profit of $0.28 per share was 18.2% above analysts' consensus estimates.
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Pegasystems (PEGA) Q2 CY2025 Highlights:
Pega Cloud ACV and total ACV beat
Pega Cloud Backlog and total Backlog beat
Subscription revenue (services + licenses) beat but growth decelerated meaningfully from last quarter
Revenue: $384.5 million vs analyst estimates of $363.1 million (9.5% year-on-year growth, 5.9% beat)
Adjusted EPS: $0.28 vs analyst estimates of $0.24 (18.2% beat)
Operating Margin: 4.5%, in line with the same quarter last year
Free Cash Flow Margin: 21.9%, down from 42.5% in the previous quarter
Market Capitalization: $8.79 billion
'Our unique approach to AI was a key driver of our strong first half results,' said Alan Trefler, Pega founder and CEO.
Company Overview
Founded by Alan Trefler in 1983, Pegasystems (NASDAQ:PEGA) offers a software-as-a-service platform to automate and optimize workflows in customer service and engagement.
Revenue Growth
A company's long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Pegasystems grew its sales at a 11.1% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.
This quarter, Pegasystems reported year-on-year revenue growth of 9.5%, and its $384.5 million of revenue exceeded Wall Street's estimates by 5.9%.
Looking ahead, sell-side analysts expect revenue to grow 2% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
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Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Pegasystems's recent customer acquisition efforts haven't yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company's inefficiency indicates it operates in a highly competitive environment where there is little differentiation between Pegasystems's products and its peers.
Key Takeaways from Pegasystems's Q2 Results
We enjoyed seeing Pegasystems beat analysts' revenue and EPS expectations this quarter. Zooming out, we think this quarter featured some important positives. Investors were likely hoping for more, and shares traded down 11% to $45.35 immediately following the results.
So should you invest in Pegasystems right now? If you're making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it's free.