This analysis does not look at areas of interest to investors, but seeks to pull out insights that are relevant to clients and prospects of Forrester Research, the number two advisory analyst firm, as well as communications and IT vendor analyst relations (AR) teams.
Forrester Research (NASDAQ: FORR) reported its Q1 2009 earnings on April 30, 2009. See the end of the blog entry for a summary and link to the press release.
Q1 revenues were up 2.5% year-over-year to $56.4m, slightly above guidance. Cash and short term investments were $225.8m, up approximately $5m over Q4.
As expected, consulting and events revenues were down as is typical during a recession. Consulting was down 12%. Forrester did not give numbers, but said Events did not meet even the reduced expectations. More interesting is that the all important “deferred revenue,” which represents syndicated research contracts, was down 7%. There was also a decrease in total clients from year end 2008 by 58 to 2,585. These are relevant data points for vendors AR teams because syndicated research contracts and total clients are simple indicators of potential changes in a firm’s influence with technology buyers. The more enterprise syndicated research clients there are, the more opportunities there are for Forrester analysts to influence vendor deals. The converse is true, fewer clients means fewer IT buyers are turning to analysts for advice.
While Forrester does not break out details on its client base, CEO George Colony mentioned that the IT (information technology, aka enterprise IT managers) and TI (technology industry, aka vendors) segments were down in the quarter, offset by growth in the Marketing & Strategy area. M&S grew in part due to companies turning to Forrester for advice on how to address social media. The implication for vendor AR programs is clear – revisit your analyst lists to ensure that Forrester analysts are correctly ranked. These data points could indicate that influence in traditional IT infrastructure and enterprise applications markets is decreasing while influence in social media and Web 2.0 markets is growing.
Forrester also announced new packaging and pricing initiatives in this earnings call. We need to do more research, but it appears that Forrester is moving to a serviced-based packaging and away from the WholeView/RoleView structure set up in the mid-1990’s. This approach might be appropriate for certain professionals whose jobs fit nicely into one role, or family of related roles. However, for those individuals who need access to multiple groups of roles, such as AR teams, this could mean an increase in expenditures with Forrester.
Acquisitions were mentioned by Colony as one of the ways Forrester can expand research for existing roles or add new roles. Forrester has plenty of cash and other assets to go shopping as prices of potential acquisitions go down. However, in response to a question about M&A, Colony did say that while some potential acquisitions are nearing reasonable prices other acquisition targets have not come down enough based on the current economic environment. It is a mind-set issue.
- Clients, whether end user or vendors, should drive a hard bargain in 2Q09 and beyond
- AR should notify colleagues who manage event sponsorships about continuing weakening attendance at Forrester events and a corresponding decrease in sponsorship value
- AR should inquire with Sales to see if the number of prospects and customers mentioning Forrester research is shrinking, growing, or staying the same. This will help determine Forrester’s continuing ability to influence vendor sales
- While cash rich, Forrester could still lay off additional employees including analysts, especially if the economic environment gets worse. AR needs to have a standard process in place to deal with unexpected departures of relevant analysts
Bottom Line: So far, Forrester remains a strong company during this recession. If Forrester does not dramatically cut its sales force or analyst team then AR needs to continue its evaluation of Forrester analysts for outreach campaigns. However, Forrester analysts should never be considered an automatic “Tier 1” just because they work at Forrester. Forrester might be the number two by revenues advisory firm, but its penetration into large enterprises is still small.
Question: Have you been offered discounts by Forrester sales reps? If so, how big were those discounts and under what circumstances
Summary from press release:
First-Quarter Financial Performance
- Total revenues were $56.4 million, compared with $55.0 million for the first quarter of last year. On a GAAP-reported basis, Forrester reported net income of $2.6 million, or $0.11 per diluted share, compared with net income of $5.0 million, or $0.21 per diluted share, for the same period last year.
- On a pro forma basis, net income was $6.3 million, or $0.27 per diluted share, for the first quarter of 2009, which reflects a pro forma effective tax rate of 40 percent. Pro forma net income excludes stock-based compensation of $2.2 million, amortization of $656,000 of acquisition-related intangible assets, and $3.1 million of reorganization costs. This compares with pro forma net income of $6.2 million, or $0.26 per diluted share, for the same period in 2008, which reflects a pro forma effective tax rate of 39 percent. Pro forma net income for the first quarter of 2008 excludes stock-based compensation of $1.4 million, amortization of $171,000 of acquisition-related intangible assets, marketable and non-marketable investment gains of $497,000, and a net benefit of $68,000 related to the settlement of stock-option-related payroll tax exposure offset by professional fees related to the stock option investigation and restatement of the Company’s historical financial statements.
“As demonstrated by our first-quarter financial performance, we are weathering the current recession and managing the business accordingly,” said George F. Colony, Forrester’s chairman of the board and chief executive officer. “Based on our deferred revenue model, we should expect that the current softness in the market today will result in a delayed impact on our revenue later in the year. As a result while we exceeded our revenue guidance for the first quarter, we are reiterating our full-year guidance.”