Pegasystems Affirms Outlook As Cloud Strategy Powers Momentum

Pegasystems Inc. (NASDAQ:PEGA) exceeded expectations in its fiscal second-quarter 2025 results, demonstrating strong momentum driven by its cloud strategy.

The enterprise software company reported robust increases in both overall revenue and a significant surge in cloud revenue, along with key growth metrics like Annual Contract Value (ACV).

This solid performance reinforced confidence in Pegasystems’ ongoing shift to cloud-based solutions and its embrace of AI-powered automation.

Also Read: Pegasystems Analysts Boost Their Forecasts After Upbeat Q2 Earnings

Following these impressive results, Wall Street is taking note of Pegasystems’ trajectory. Among the analysts providing updated commentary, Rosenblatt analyst Blair Abernethy maintained Pegasystems with a Buy and raised the price forecast from $59 to $61 on Wednesday.

Abernethy maintained a bullish outlook on Pegasystems following its strong fiscal second-quarter 2025 results, which beat estimates and reinforced confidence in its cloud-driven growth strategy.

Pegasystems reported total revenue of $384.5 million, rising 9% year-over-year and exceeding the analyst’s estimate of $367.1 million and the consensus of $361.8 million.

The upside was primarily fueled by a 24% year-over-year increase in cloud revenue, which reached $166.7 million and accounts for 43% of total revenue.

Abernethy emphasized that Annual Contract Value (ACV), a key growth metric, rose 16% year-over-year (14% in constant currency) to $1.514 billion, surpassing the estimated $1.476 billion.

Pega Cloud ACV jumped 28% year-over-year, reaching $761.1 million, indicating a continued shift from on-premise to cloud-based deployments. The analyst attributed these gains to strong customer renewals and growing traction for Pega Blueprint, which helps enterprises modernize and expand workflows using AI-powered automation.

Abernethy noted that recurring maintenance revenue came in at $79.3 million, slightly ahead of the $76.5 million projection, while term license revenue, though down 6% year-over-year, beat estimates at $74.6 million. Operating margins reached 14.2%, supported by ongoing expense control and economies of scale in the cloud business. Free cash flow (FCF) hit $84.1 million, and operating cash flow reached $86.3 million in the quarter.

The company reaffirmed its fiscal 2025 guidance, including 12% ACV growth, $1.7 billion total revenue (up 7% year-over-year), $440 million free cash flow, and $455 million operating cash flow.

According to the analyst, the court reversal of the previous $2 billion Appian (NASDAQ:APPN) judgment has significantly reduced legal risk, and customer sentiment around the case appears to be improving.

Abernethy expects Pega to generate $452.2 million in FCF in fiscal 2025, translating to a 27% FCF margin, with continued expansion into fiscal 2026-27 as the subscription model fully scales.

Following second-quarter results, Abernethy slightly adjusted fiscal 2025–26 and estimates, introduced fiscal 2027 forecasts, based on a blended average of discounted cash flow (DCF) and EV/Sales valuation models.

The analyst concluded that Pega remains well-positioned for long-term growth, citing strong momentum in its cloud business, improving FCF profile, expanding automation opportunities, and reduced legal overhang.

Price Action: PEGA stock is trading lower by 0.90% to $57.45 at last check Thursday.

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