Pegasystems growth continues, but clouds remain nebulous

Pegasystems just announced its full-year financial results for 2016, and as of December 31, it attained a shade over $750m in revenue – that’s a 10% increase over 2015’s total of $682.7m.

Pegasystems had been forecasting full-year revenue of $800m as recently as October 2016, and Q4 reported revenue was actually down very slightly over the same period in 2015 – whereas growth for the first three quarters had averaged 15% over the year-before periods.

However behind the headlines, Pegasystems continues to shift its business towards renewable term licensing and away from perpetual licensing: as a result its revenue backlog has grown around 20% over the previous year – with a significant chunk of that increase coming in the last quarter. The company asserted on a recent investor call that the shortfall against its $800m revenue guidance is in the main down to this, and also partly down to the impacts of currency fluctuations.

Overall, then, Pegasystems seems to be continuing to perform well – even if the headline reported revenue figure was a little depressed in its most recent quarter. It’s certainly continuing to invest, and has aggressive plans to reach a new, broader range of customers (beyond the largest 400 or so corporations).

You might wonder how much a ‘shift to cloud’ is part of this shift in licensing models.

The answer is that right now, it’s not very clear how big the impact is.

Pegasystems’ cloud revenue, at $41.4m, is still only 5.5% of the company’s overall revenue even though it grew around 35% over 2015. This relates to customers’ choice to use Pega’s own managed cloud service offering, and Pega has shared that over the past year 46 clients opted for Pega’s managed cloud – but it’s important to note that this is only part of a broadening picture.

Now the company is starting to make noise about its new ‘cloud choice’ proposition, which enables customers to choose a Pega-managed cloud service (referred to above); a partner-managed cloud service; or a self-managed cloud deployment (as well as on-premise deployment). Right now, Pegasystems isn’t sharing any guidance on how widely these alternative models are being used (though there is some limited anecdotal evidence, such as this WSJ article about AIG‘s deployment of Pega in a private cloud across thousands of small insurance agents – subscribers only); and it’s not straightforward to link the shift to term licensing too closely to clients’ use of cloud platforms for deployments.

I think that Pega’s success in aggressively developing business with a broader range of customers will depend to a significant degree on it offering meaningful choices here: but certainly, if it wants to continue with recent competitive marketing campaigns targeting Salesforce and expect to be credible, it’s going to need to push harder and offer more concrete evidence of cloud adoption (of various flavours).

UPDATE: this post has been updated to clarify statements about Pegasystems’ stated cloud revenue and how this relates to the bigger picture of customers using Pega in the cloud.


Leave a Reply

Your email address will not be published. Required fields are marked *