Why Is Pegasystems (PEGA) Down 17.6% Since Last Earnings Report?

It has been about a month since the last earnings report for Pegasystems (PEGA). Shares have lost about 17.6% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is Pegasystems due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important drivers.PEGA Q3 Earnings Surpass Estimates, Revenues Increase Y/YPegasystems' third-quarter 2025 non-GAAP earnings of 30 cents per share, which beat the Zacks Consensus Estimate by 66.67% and increased 58% year over year.Revenues of $381.35 million beat the Zacks Consensus Estimate by 7.42% and increased 17% year over year.Pegasystems’ strong third-quarter 2025 performance is driven by its unique AI strategy, led by the Pega Blueprint platform. Growth was fueled by AI-integrated workflows, rising cloud subscriptions, and disciplined execution, resulting in higher ACV, backlog, and margin gains.PEGA’s Quarterly PerformanceSubscription services revenues, comprising Pega Cloud and Maintenance, generated $264.2 million (contributing 69% to total revenues), up 18% on a year-over-year basis.Subscription license revenues (16% of total revenues) were $60.6 million, representing a 33% year-over-year growth.Total Subscription revenues, consisting of both subscription services and subscription licenses, rose 20% year over year to $324.8 million (contributing 85% to total revenues).Consulting revenues (15% of the total revenues) were $56.4 million. The reported figure is up 4% year over year.Perpetual license revenues (41.4% of the total revenues) were $158 million, declining 65% year over year. This segment remains a negligible contributor compared to others.Pega Cloud's Annual Contract Value (ACV) increased 27% year over year to 815 million.Maintenance and Subscription licenses, collectively referred to as Client Cloud ACV, rose 3% year over year to $742 million.The company reported that Total ACV increased 14% year over year on a reported and constant-currency basis, reaching $1.557 billion.The company's backlog grew 19% year over year on a reported basis and 18% on a constant currency basis, underscoring the sustained demand for its services and products and future revenue visibility.Pegasystems’ Q3 Operating ResultsIn the third quarter of 2025, the gross margin expanded 190 basis points (bps) year over year to 72.3%.Total operating expenses increased 8.7% year over year to $261 million. As a percentage of revenues, operating expenses decreased 550 bps.The company reported an operating income of $14.5 million, down 224.1% year over year. The operating margin expanded 740 bps from the year-ago quarter to 3.8%.PEGA’s Balance Sheet & Cash FlowAs of Sept. 30, 2025, cash and cash equivalents and marketable securities were $351.3 million compared with $411.6 million as of June 30, 2025.Operating cash flow rose more than 38% year over year to $347 million, while free cash flow grew 38% to approximately $338 million.PEGA repurchased 8.7M shares for $393 million in the year-to-date period.How Have Estimates Been Moving Since Then?It turns out, fresh estimates have trended downward during the past month.VGM ScoresAt this time, Pegasystems has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Pegasystems has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Pegasystems Inc. (PEGA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks