Pegasystems growth continues, but clouds remain wispy
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 a big contributor at all. 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. The company is starting to make noise about its new ‘cloud choice’ proposition, which enables customers to choose a Pega-managed cloud service; a partner-managed cloud service; or a self-managed cloud deployment (as well as on-premise deployment) – we’ll soon see if this starts to have an effect. Pega’s success in aggressively developing business with a broader range of customers will depend to a significant degree on offering choice here: and certainly, if it wants to continue with recent competitive marketing campaigns targeting Salesforce and expect to be credible, it’s going to need to up its game.
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