Forrester Reports Mixed Q3 Results, Maintains Optimism
Forrester Research, Inc. (NASDAQ: FORR) experienced a challenging period in the third quarter of 2024. The company reported revenue of $102.5 million, reflecting a 10% decrease, along with a 5% decline in contract value (CV) to $315.2 million. Despite these challenges, the transition to the Forrester Decisions platform is progressing well, with 78% of CV now attributed to this product. Forrester anticipates exceeding 80% by the end of the year.
The company also launched a new service for data, artificial intelligence, and analytics leaders and introduced the generative AI research portal, Izola. Additionally, Forrester divested its FeedbackNow product line for $6 million in cash, along with a promissory note of $9 million to be paid in 2025. Customer retention metrics remained stable, and the company has established a focused recovery plan for the next year.
Key Points:
- Forrester's revenue in Q3 2024 was $102.5 million, down 10%.
- Contract value decreased by 5% to $315.2 million, with a target of exceeding 80% for the Forrester Decisions platform by year-end.
- A new service was launched for data, AI, and analytics leaders, and the generative AI research portal Izola was introduced.
- The company divested the FeedbackNow product line, focusing on its strategic platform.
- Overall customer retention rate is 73%, wallet retention rate is 89%.
- Consulting revenue declined by 17%, and event revenue fell by 54%.
- Operating income decreased by 33% to $8.2 million, with net income also significantly reduced.
- Revenue guidance for 2024 is set between $425 million and $435 million, with an expected operating margin of between 8.5% and 9.5%.
Company Outlook: Forrester aims to complete the transition to Forrester Decisions and improve Q4 performance to build a stronger foundation for 2025. Revenue guidance for the full year 2024 is set between $425 million and $435 million, and the company expects improvements in revenue and CV stability in the coming year.
Negative Highlights:
- Research revenues fell by 4%, consulting revenues by 17%, and event revenues by 54%.
- Operating income and net income experienced significant declines compared to the previous year.
Positive Highlights:
- The transition to Forrester Decisions is progressing faster than planned, with 78% of CV now attributable to this product.
- The launch of Izola and the new service for data, AI, and analytics leaders showcases the company's innovation.
Shortcomings: Despite stable retention metrics, Forrester experienced a notable decline in customers this quarter, particularly among small clients, attributed to the divestiture of FeedbackNow.
Q&A Highlights:
- December is expected to be the largest order month, fostering optimism for CV stability and growth.
- The impact of losing small clients is diminishing, with a focus on building relationships with vendors over $50 million.
- The sales team is being trained to connect better with senior executives, aiming to accelerate progress.
- Challenges related to customer budgets persist, necessitating clear demonstrations of value to facilitate expansion.
InvestingPro Forecasts: Forrester's recent financial performance aligns with several key metrics and forecasts from InvestingPro. According to InvestingPro, the company experienced an 11.42% revenue decline over the last twelve months, consistent with the reported 10% decline for Q3 2024. This trend is further supported by InvestingPro's indication that analysts expect a downturn in sales this year.
Despite these challenges, Forrester maintains an impressive gross margin of 56.92% over the last twelve months, as highlighted by an InvestingPro tip. This strength in margins may provide a cushion as the company transitions to the Forrester Decisions platform and works to stabilize contract value.
The company's market capitalization reflects the recent challenges, standing at $295.62 million. Notably, Forrester's stock price has significantly decreased over the past three months, with InvestingPro data indicating a 3-month total return of -18.43%. This decline aligns with the difficulties reported by the company and could present opportunities for investors believing in Forrester's recovery plans.
Looking ahead, an InvestingPro tip suggests that net income is expected to increase this year, which could be a positive sign for Forrester's established recovery strategy. Furthermore, analysts anticipate the company will be profitable this year, providing some reassurance for investors concerned about recent performance declines.
For those looking for a deeper analysis, InvestingPro offers five additional tips for Forrester Research, providing a more comprehensive view of the company's financial health and outlook.