Pegasystems (NASDAQ:PEGA) Reports Upbeat Q1, Stock Jumps 22.8%

April 22, 2025 at 16:44 PM EDT

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Enterprise workflow software provider Pegasystems (NASDAQ: PEGA) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 44.1% year on year to $475.6 million. Its non-GAAP profit of $1.53 per share was significantly above analysts’ consensus estimates.

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Pegasystems (PEGA) Q1 CY2025 Highlights:

Revenue: $475.6 million vs analyst estimates of $357.5 million (44.1% year-on-year growth, 33.1% beat)
Adjusted EPS: $1.53 vs analyst estimates of $0.50 (significant beat)
Operating Margin: 26.7%, up from -6.2% in the same quarter last year
Free Cash Flow Margin: 42.5%, up from 18.8% in the previous quarter
Market Capitalization: $5.68 billion

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.

Automation Software

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Pegasystems’s sales grew at a sluggish 8.8% compounded annual growth rate over the last three years. This was below our standard for the software sector and is a poor baseline for our analysis.

This quarter, Pegasystems reported magnificent year-on-year revenue growth of 44.1%, and its $475.6 million of revenue beat Wall Street’s estimates by 33.1%.

Looking ahead, sell-side analysts expect revenue to decline by 1.6% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates its products and services will face some demand challenges.

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Customer Acquisition Efficiency

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

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 Q1 Results

We were impressed by how significantly Pegasystems blew past analysts’ revenue and EPS expectations this quarter. Zooming out, we think this was a solid quarter. The stock traded up 22.8% to $84.50 immediately after reporting.

Indeed, Pegasystems had a rock-solid quarterly earnings result, but is this stock a good investment here? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.

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