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Why Pegasystems Stock Was Sliding Today
Key Points
Pegasystems missed estimates on the top and bottom lines.
The company said customers are delaying orders, presumably due to AI-native alternatives.
The stock looks cheap following the pullback, but the AI threat is a significant risk.
Shares of Pegasystems (NASDAQ: PEGA) were moving lower today after the enterprise automation software company missed the mark in its second-quarter earnings report, coming up short on both the top and bottom lines.
As a result, the stock was down 13.6% as of 9:49 a.m. ET.
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Pega comes up short
Pega, as the company is often known, said that revenue in the quarter was up 9% to $420.7 million, but that missed estimates at $426.6 million.
The company reported overall annual contract value (ACV) growth of 7%, and 22% ACV growth in Pega Cloud. Management explained the slowdown in ACV growth, saying, "Unprecedented changes in the AI market caused clients to delay their purchasing decisions," which seems to reflect customers spending more on AI-native tools rather than traditional cloud software.
On the bottom line, Pega's adjusted earnings per share increased from $0.28 to $0.35, though that was short of expectations at $0.43.
Pega COO and CFO Ken Stillwell gave the quarter a positive spin, saying, "As the market shifts from AI experimentation to tokenomics and reliable business outcomes, that evolution plays directly to Pega's strengths."
What's next for Pega
Pegasystems does not give quarterly guidance, which increases the weight of the quarterly results. This is the second quarter in a row that Pegasystems has missed estimates, and its struggles seem to confirm the same headwinds in the enterprise automation software sector that caused IBM stock to plunge last week.
Pega stock looks cheap based on adjusted earnings expectations, but the sell-off is understandable given what seems to be AI disruption.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends International Business Machines. The Motley Fool has a disclosure policy.