Forrester Research Q2 2009 earnings

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. 

logo-forrester.gifForrester Research (NASDAQ: FORR) reported its Q2 2009 earnings on July 30, 2009. See the end of the blog entry for a summary and link to the press release. 

This post is part one of two parts when it comes to an analysis of the Forrester Q2 earnings. This is because the 10-Q, which comes out within two weeks of the earnings call, has more detail than the currently available 8-K and the earnings call.

Forrester’s acquisition of JupiterResearch was made in Q3 2008 which makes Q2 year-over-year comparisons not entirely relevant for our purposes. As a consequence, we will be checking sequential quarter comparisons because they will show the trends in this downturn and be more informative for AR and research clients.

Q2 revenues were down 3% year-over-year to $61.6m, about what guidance predicted. Cash and short term investments were $239.4m, up approximately $26m year-over-year and $13.6m over Q1.

As expected, consulting (called Advisory by Forrester for financial reports) and events revenues were down which is typical during a recession. Consulting was down 8%. Forrester did not give numbers, but said Events did meet the reduced expectations in terms of revenue, overall was profitable and even saw one event, Customer Experience Forum 2009, sell out.

There was a decrease of 92 total clients from Q1 to 2,493 (150 total decline since year end 2008). Forrester stated these were mostly small technology vendors and not any large end-user enterprise clients. This is consistent with the current and past recessions when vendors cut – sometimes dramatically – their spending even as end users kept their spending relatively flat (see Are the vendor-centric analyst firms heading for tough times? Will end-user centric analyst firms do fine?).

Exact syndicated research contract value details are not yet available as they will be in the 10-Q. This is a relevant data point for vendor 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 sales deals. The converse is true, fewer clients means fewer IT buyers are turning to analysts for advice. This will be a focus of the follow up post when the 10-Q is published.

So far sales and research headcount remain relatively flat compared with year-end 2008 with just the normal departures and backfills. While all executives on the call were clear that sales and research staff will not grow as they have in the recent past, they were also emphatic that there will not be cuts. This means that even as revenues shrink as expected, Forrester will not be able to reduce expenses. They are willing to take that hit in the short term in order to position the firm for growth once the economy turns around. There did not seem to be any pushback on this point by the Wall Street analysts on the call. There are plans for modest sales force growth in 2010 with a resumption of long term year-over-year sales headcount growth of 15% resuming in 2011. No mention was made of future expansion of the research team.

Repackaging from a unitary RoleView (formerly WholeView) to Client Groups (enterprise IT managers, vendors and marketing) is continuing forward. One important point is that the sales force has been split into dedicated teams for each Client Group. This is a very important point for AR professionals as their assigned sales team will be even more focused on selling them Technology Industry Professionals Client Group roles and likely trying to steer them away from roles in the IT Professionals Client Group. It would be a major mistake for vendors and AR teams to follow this path. What is critical for AR teams is access to the analysts who advise end users – the prospects and customers of most vendors. There is still no proof that the so-called courtesy reads and inquiries between roles and Client Groups will be sufficient for AR to carry out its strategic objectives of “Shaping Market Perception” and “Arm Sales.” It is recommended that SageCircle clients set up inquiries with strategists to lay out a plan of action for Forrester contract renewals, even ones that do not occur for months.

As always, acquisitions were mentioned 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 the cost of potential acquisitions go down. Unlike Q1, when it was mentioned that potential acquisition targets had unrealistic price expectations, potential acquisitions are now seen as much more reasonable. There appear to be several serious M&A opportunities in the pipeline, but of course none of those could actually close.

SageCircle Technique:

  • Clients, whether end user or vendors, should drive a hard bargain in 3Q09 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 advisory firm by revenues, 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:

Second-Quarter Financial Performance

Total revenues were $61.6 million, compared with $63.5 million for the second quarter of last year.

On a GAAP-reported basis, Forrester reported net income of $6.2 million, or $0.27 per diluted share, compared with net income of $8.6 million, or $0.37 per diluted share, for the same period last year.

On a pro forma basis, net income was $8.8 million, or $0.38 per diluted share, for the second quarter of 2009, which reflects a pro forma effective tax rate of 40 percent. Pro forma net income excludes stock-based compensation of $1.3 million, amortization of $656,000 of acquisition-related intangible assets, and impairments of non-marketable investments of $951,000. This compares with pro forma net income of $8.6 million, or $0.37 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 second quarter of 2008 excludes stock-based compensation of $1.3 million, amortization of $23,000 of acquisition-related intangible assets, net marketable and non-marketable investment gains of $1.6 million and expenses related to the stock option investigation and restatement of the Company’s historical financial statements of $666,000.

“Our performance for the quarter met our expectations, with revenue on target and operating margin and EPS slightly exceeding our guidance,” said George F. Colony, Forrester’s chairman of the board and chief executive officer. “As expected, the ongoing soft economy continues to impact our deferred revenue performance, declines that are already reflected in our existing guidance. We continue to carefully navigate this difficult economy through prudent expense management, innovating for our clients, and accelerating the role-based strategy so we are well-positioned when the economy begins to recover.”



  1. Hi Carter,

    One significant clarification for your readers especially those AR professionals — Tech Industry RoleView includes access to all Forrester analysts and research. Cross-client group courtesy views and inquiries as you referenced them are therefore not necessary.


  2. To Carter’s point and Trish’s response: I think Carter is right, most AR teams are focussing on what’s written for end-users.

    Market Intelligence (MI) may be interested in the Technology Vendor role, but I don’t see this being a major focus for mainstream AR.

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