Pegasystems’ strong earnings and revenue don’t impress investors, and its stock flounders – News

Business automation software provider Pegasystems Inc. might be wondering what it did wrong today after posting solid earnings and revenue in its latest financial report, only to see its stock fall sharply in extended trading.

The company reported second-quarter earnings before certain costs such as stock compensation of 28 cents per share, comfortably beating Wall Street’s target of 24 cents. Revenue for the period rose 9% to $384.5 million, also beating the analyst forecast of $368.8 million.

All told, Pegasystems delivered net income of $30.1 million, up from a profit of just $6.6 million in the year-ago period.

Pegasystems made its name as a supplier of low-code business automation software, which is used by people without coding skills to create programs that can automate repetitive tasks and unify business processes and customer journeys. The software helps companies to get a better handle on the multiple business applications and systems they use. By creating a configurable platform that sits above those other systems, the Pega Platform provides businesses with a single view of their customers, cases and workflows, together with all of the associated data.

The company’s focus on automation has meant that it has shown a lot of interest in the potential of generative artificial intelligence and AI agents. They are more sophisticated systems that can automate much more complex tasks for humans, with only minimal supervision. The Pega Infinity platform has thus emerged as one of its key modules, designed to help teams build generative AI agents powered by the third-party large language models of their choice.

In addition, it offers a Pega GenAI Blueprint tool that transforms user’s ideas for generative AI applications into interactive blueprints, so anyone can understand and build them. There’s aso Pega Agentic Process Fabric, which is an orchestration service that’s used to manage dozens of AI agents.

These offerings are all relatively new, launching in the last year or so, and according to Pegasystems founder and Chief Executive Alan Trefler (pictured), have become a major growth driver for the company.

“Our unique approach to AI was a key driver of our strong first-half results,” he said. “Pega harnesses AI’s creative potential where it can best drive transformation – during workflow design with Pega Blueprint. This drives consistent execution through our state-of-the-art Pega Infinity workflow engine, rather than through inherently unpredictable prompts. Pega’s Predictable AI approach gives enterprises both the innovation they crave and the operational consistency they require.”

The company reeled off plenty of additional numbers to back up its claims of AI-driven growth, saying its annual contract value grew by 16% from a year earlier, while the Pega Cloud’s ACV grew by even more, at 28%.

Despite the strong numbers, investors were clearly looking for something more from Pegasystems and don’t appear to have found it, for the company’s stock fell sharply in extended trading. At one point, the stock was down just over 10% after-hours, though it has since recovered some of those losses, and was down 5% at the time of writing.

Perhaps, it was one or two blips in Pegasystems’ latest financials. One disappointment was revenue from subscription services, which came to $240 million in the quarter, trailing the $251.3 million analyst forecast. Similarly, Pega Cloud revenue also came up short at $166.7 million, below the $172.9 million estimate.

That said, Pegasystems made up for it in other departments. Its overall subscription revenue, for instance, topped $325.9 million, easily beating the Street’s forecast of $305.1 million.

In any case, Pegasystems continues to outperform many of its peers, as its stock is still up more than 9% in the year to date, ahead of the broader S&P 500 Index, which has gained 7% in the same timeframe.

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