Pegasystems Earnings: Pega Cloud Drives Good Results, but Profitability Outlook Is Light

No-moat Pegasystems reported fourth-quarter results that were above our expectations on the top and bottom lines. Guidance was mixed, with revenue slightly better and non-GAAP earnings per share slightly worse than anticipated. The shares sold off sharply after the release, which supports our notion that they were overheated heading into results. The company’s artificial intelligence strategy is core to our long-term thesis, and it's executing it well, reflected in strong growth this quarter in annual contract value. Along the same lines, we are encouraged by engagement on Blueprint ramping up, as it gives the company a chance to cross-sell and upsell on its installed customer base while also bringing in new clients into the fold. After several modest model tweaks, we are raising our fair value estimate to $82 per share from $80. We see the shares as fairly valued after the Feb. 13 selloff.