Time to Take Notice: PEGA’s GenAI Blueprint Delivers Huge Q3 Beat

Key Points

• Pegasystems continued its GenAI momentum, posting a massive Q3 earnings beat.
• Shares soared as the company's cloud growth accelerated, driven by its differentiated GenAI strategy.
• Pega has now seen its shares rise after 83% of its past 12 earnings releases. GenAI Blueprint could lead to more beats.

 

On a day that saw a handful of highly impressive earnings reports, tech stock Pegasystems NASDAQ: PEGA more than held its own. Shares blasted up by 15% on Oct. 22 as the market digested the company’s latest financials. This surpassed the most talked-about post-earnings gainer that day, Intuitive Surgical NASDAQ: ISRG, which rose 14%.

Pegasystems' huge gain further cemented it as an artificial intelligence (AI) solution provider that investors should take notice of. Shares have now delivered a total return of approximately 89% over the past 52 weeks. However, Pega’s rally could just be getting started. Below, we’ll break down Pegasystems' latest quarter and detail why the stock likely isn’t done gaining yet.

PEGA Trounces Forecasts; Cloud ACV Growth Accelerates

In Q3, Pega posted revenue of approximately $381 million, or a 17.3% growth rate. This handily beat expectations of $352 million, or growth of just 8.1%. The company’s adjusted earnings per share (EPS) of 30 cents were even more impressive. This crushed estimates of just 18 cents. Pega’s adjusted EPS grew by 50% from the prior year, while analysts forecasted a 10% drop.

The company’s Pega Cloud average contract value (ACV) grew by 27% as a strong forward-looking indicator. ACV growth reflects how much new, annually recurring business Pega added in the quarter. However, it takes time to translate into revenue, as customers make payments over time. Thus, the fact that Pega Cloud ACV grew nearly 1,000 basis points faster than revenue provides potential for sales growth to accelerate over the next few years. Further showing the company’s Pega Cloud momentum is that ACV growth accelerated from 25% last quarter.

Pega focuses on driving existing and new customers to its cloud-based software versus its on-premises Client Cloud software. This makes Pega Cloud the company’s future. The fact that the firm posts robust results in this area is a highly positive sign.

GenAI Blueprint: Pega’s Ace in the Hole

GenAI Blueprint is the star driving the company’s impressive Pega Cloud growth. Blueprint helps customers design internal applications faster than they could using AI. The tools created by Blueprint then predictably automate tasks, following guidelines set up by humans. Pega argues that this allows its AI agents to provide consistent customer results. AI agents not built in this way can give inconsistent answers, reducing their value. GenAI Blueprint's predictability makes it stand out in highly regulated and data-sensitive industries like healthcare and banking. The company says that Blueprint is now the “exclusive way” to begin new client conversations.

With Pega Cloud ACV growing strongly, Blueprint’s value is clearly resonating. This product is why Pega Cloud should be on investors' radar, as it is driving business and is unique compared to other AI agents. Blueprint-driven growth could accelerate even further, as most of the interest comes from current clients. If Pega manages to start adding a lot of new clients through Blueprint, it could produce even more impressive results in the future.

PEGA Is a Repeat Earnings Winner and Analysts See Solid Upside

Pega’s strong earnings performance is anything but a one-time occurrence. Over the last 12 quarters, Pega has seen its shares close up by an average of 10% the day after releasing earnings. Shares only fell on two of those occasions. Clearly, Pega has a propensity to deliver impressive results. While this does not mean history will continue to repeat itself, the company has proven doubters wrong time and time again.

Among analysts who issued updates after Pega’s results, the average price target moved up by just under 17%. This indicates that analysts broadly saw Pega’s 15% rise as justified. Among these analysts, the average price target on Pega now sits at $75.40. This figure implies solid upside potential of 15%. That’s much more than the 6% upside implied by the MarketBeat consensus price target, demonstrating the substantial improvement in analyst sentiment. Although 15% upside potential isn’t earth-shattering, targets can increase if Pega keeps posting stellar results.

Overall, the momentum Pega is seeing, driven by GenAI Blueprint, is hard to deny. With Blueprint, the company can drive considerable growth going forward. While Pega has already performed impressively, its bull run could still have a long way to go.