AI Driven Pricing And Offer Management Will Reshape Long Term Prospects

Catalysts

About PROS Holdings

PROS Holdings provides AI driven pricing, revenue management and CPQ software that helps enterprises optimize offers and accelerate profitable digital commerce.

What are the underlying business or industry changes driving this perspective?

• Acceleration of AI powered commercial workflows, including PROS specialized agents that combine language and numerical models, is expected to deepen product stickiness, unlock new cross sell opportunities and support sustained double digit subscription revenue growth and higher ARR.
• The global shift toward dynamic, personalized digital buying experiences in B2B and travel is increasing demand for intelligent offer and order management, positioning PROS as a preferred platform and driving higher win rates, larger deal sizes and expanding gross margins.
• Airlines and large enterprises are redesigning their tech stacks around best of breed offer management to handle complex products, ancillaries and tariffs. This aligns directly with PROS core strengths and should support durable growth in high value travel and industry vertical revenue.
• Strategic platform partnerships, such as the Commerce relationship and a growing pipeline of similar alliances, materially broaden distribution and top of funnel access. This can compound new logo acquisition and expansion activity while leveraging a largely fixed cost base to improve EBITDA margins.
• Ongoing product simplification, faster time to value and increased use of partners for implementation are expected to reduce services intensity, accelerate deployments and shift mix toward high margin subscription revenue. This supports rising free cash flow and net margin improvement over time.

Assumptions

This narrative explores a more optimistic perspective on PROS Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming PROS Holdings's revenue will grow by 13.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.3% today to 0.4% in 3 years time.
• The bullish analysts expect earnings to reach $2.1 million (and earnings per share of $0.04) by about December 2028, up from $-11.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 1109.6x on those 2028 earnings, up from -96.3x today. This future PE is greater than the current PE for the US Software industry at 32.9x.
• The bullish analysts expect the number of shares outstanding to grow by 1.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.34%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company operates in a persistently challenging macro environment, with international customers in particular delaying or pausing projects due to economic and tariff related uncertainty. This could slow new logo acquisition and expansion and limit the projected acceleration in subscription revenue and ARR growth.
• Airline and travel customers face long and complex sales and implementation cycles as they redesign tech stacks around offer and order management. Any elongation in decision making or a shift toward all in one platform vendors could push out deployments and dampen the expected uplift in total revenue and gross profit.
• PROS aggressive push into Agentic AI and new AI agents is still in pilot phases. If usage, pricing models, or competitive offerings from larger AI and software players fail to break out at scale, monetization may lag adoption and constrain improvements in net margins and long term earnings power.
• The strategy to rely more on partners and simplify deployments intentionally shifts work away from in house services and toward third parties. If this channel and product led motion does not generate sufficient incremental high margin subscription volume, the company could experience weaker overall revenue growth and slower operating leverage expansion.
• Despite improving EBITDA and free cash flow, the business still carries a meaningful convertible debt load and is reinvesting savings into sales and marketing. If expected top of funnel initiatives do not translate into faster bookings growth by 2026, profitability and earnings per share could fall short of optimistic expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for PROS Holdings is $35.0, which represents up to two standard deviations above the consensus price target of $25.6. This valuation is based on what can be assumed as the expectations of PROS Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $23.25.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $513.6 million, earnings will come to $2.1 million, and it would be trading on a PE ratio of 1109.6x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of $23.25, the analyst price target of $35.0 is 33.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.