Pegasystems (PEGA -0.92%) shareholders lost ground to the market on Thursday as the stock dropped 12% by 12:30 p.m. ET. The cloud software specialist announced a fiscal 2022 outlook that landed with a thud for investors who were looking for an aggressive growth forecast.
Pegasystems said late Wednesday that sales rose 6% through late December, which was a bit weaker than most investors expected. Revenue had been expanding by 25% through the first nine months of the year.
Pegasystems' growth rate can fluctuate due to the timing of a few large contracts, though, and that's why management focuses on annual contract value as its favorite sales metric. Revenue was up 20% on that basis, compared to 22% in the previous quarter. "Robust demand for digital transformation projects resulted in continued strong growth for Pega," CEO Alan Trefler said in a press release
Pegasystems issued an outlook calling for steady growth ahead, although at a slightly lower rate than Wall Street was hoping to see. Revenue will land at about $1.5 billion in 2022, equating to annual contract value gains of between 22% and 24%.
The company is expecting another year of net losses as it completes its transition to a subscription services business model. But management sees a long runway ahead for improving operating margins and cash flow.
Those factors clash with the sharp stock price decline since late 2021. But that slump has more to do with wider concerns about growth stocks, especially those that have enjoyed pandemic-related tailwinds over the past few years. Pegasystems is enduring just a modest slowdown today even as its financial metrics improve. Continued wins there should eventually support an expanding stock price.