A tale of two sales teams – an analysis of Gartner’s & Forrester’s 2012 financials
If you ever wanted evidence that success in the analyst business is about more than good research, then the latest financial results from Gartner and Forrester tell the story – it’s as much about sales performance as anything else.
In its earnings call on Wednesday (US time) Forrester chairman & CEO, George Colony, CFO Michael Doyle & recently-appointed chief sales officer, Mike Morhardt, all pinned the blame for weak 2012 results on a complex sales compensation plan implemented in early 2012, which subsequently accelerated salesforce attrition & impacted bookings growth.
A week ago, Gartner reported much stronger growth for the fiscal year, and attributed its performance, in part, to a continued focus on improving sales productivity. Increasing its sales headcount by 12 per cent over the year probably didn’t hurt, either.
Looking at the numbers and listening to the earnings calls, Gartner appears to be at the top of its game & would seem to have no intention of backing off, while Forrester is more in recovery mode from a tough year, with its outlook still a little tentative. So let’s take a look at the breakdown and see what it can tell us about the prospects for both firms.
Top line, bottom line
- Gartner finished fiscal 2012 with total revenues of $US1.616 billion, an increase of 10 per cent over 2011, while Forrester reported revenues of $US293 million, an increase of just 3 per cent
- Gartner posted a net income of $US166 million, an increase of 21 per cent over 2011 & 10.3 per cent as a percentage of revenues, while Forrester recorded net income of $US26 million, a growth of 13 per cent & 8.9 per cent as a percentage of sales
While the deltas between those sets of figures are telling, they’re not too bad when compared to the Q4 numbers. Forrester’s revenues grew less than 1 per cent from Q4 2011 and net income declined 47 per cent, while Gartner reported revenue growth of 11 per cent and net income growth of 31 per cent.
It’s not unusual to have a strong Q4 – most sales teams are driven to close deals at the eleventh hour – so the fact that Forrester didn’t push more over the line is interesting. Gartner CEO Gene Hall spoke of double-digit growth in earnings, revenues & cashflow in Q4, plus double-digit growth in research in all of its major geographies. There was no such enthusiasm on the Forrester call.
Syndicated research services account for about the same percentage of revenue for both firms – 70 per cent in the case of Gartner, 69 per cent for Forrester. But while research revenues grew 12 per cent year-on-year for Gartner, Forrester’s grew at only 6 per cent. The delta was even greater in Q4 – Gartner’s research revenues increased almost 13 per cent, Forrester’s less than 3 per cent.
Outside of the numbers, Gartner didn’t talk about its research business much at all. By contrast, Colony spent a good chunk of his introductory remarks talking about research products & methodologies, most notable of which was his discussion of playbooks, which Forrester introduced in 2012 to guide customer roles through every stage of a strategy, from development to execution. While the broader analyst & AR community seems a little uncertain that the playbooks are a true differentiator for Forrester, Colony confidently stated that the firm would double the number of playbooks from 39 in 2013, with all of them being constantly refreshed.
There is no doubt that events have become a nice cash cow and a great growth business for Gartner over the past few years. Events revenue grew 17 per cent in 2012 and 21 per cent in Q4, and now account for 11 per cent of revenues, up from 10 per cent a year earlier. In 2012, Gartner ran 62 events worldwide, and plans to increase that by a handful this year – why wouldn’t you, when attendee numbers grew 8 per cent, exhibitors increased 20 per cent, and the business provides a 46 per cent gross contribution!
Forrester doesn’t break out events revenues in its balance sheet, but seems less bullish about this segment than Gartner. Forrester had been steadily increasing the number of events it hosted, but plans to reduce the total to 19 in 2013 – “fewer, bigger & better events” with improved customer experience.
This was a weak segment for both firms. Gartner’s consulting revenues declined 1 per cent for the year and 8 per cent in Q4, which Gartner CFO Chris Lafond said was “below expectations” and was a result of contract optimisation. Despite this, Gartner had increased billable headcount by 5 per cent by the end of the year.
Forrester’s consulting revenues are included in “advisory services and other” which presumably includes events revenues. This line item declined 2 per cent for the year and 4 per cent in Q4, with CFO Michael Doyle saying that consulting delivery had been impacted by analyst attrition, although bookings had grown.
Gartner didn’t mention total or research headcounts on its earnings call (and hasn’t yet updated its factsheet), but there is little doubt that both of those increased in 2012. There has been a constant stream of research headcount requisitions posted (and filled) over the past several months, and there have been few departures. Gartner said that it added 149 sales positions, bringing the total 1,417, and billable consulting headcount increased to 503.
Forrester said on its earnings call that sales attrition slowed after modifying the compensation plan mid-year, and that it finished the year with 274 quota-carrying salespeople, 239 of whom were “fully-ramped”, after increasing recruitment. Its press statement cited a total salesforce of 462, up 5.5 per cent for the year, while of more concern was the fact that analyst headcount declined 4 per cent to 432. Forrester also stated that it would eliminate approximately 30 jobs “to streamline its operations” but gave no detail about where those cuts would be.
Gartner is bullish about 2013, saying it is “well-positioned for another year of strong growth” and providing formal guidance of 10 to 13 per cent growth in total revenues, with research strongest at 13 to 14 per cent. Forrester’s guidance range for the full year is -1 per cent to +2 per cent, with executives saying it was hoped that recent & ongoing changes to the sales structure would lead to a modest increase in sales productivity.
Gartner seems to have all the levers for its business in the right places, but no doubt will continue to fine-tune. This is a company which has comfortably increased its prices by between 3 and 6 per cent per annum since 2005, has a quarterly client retention rate of 83 per cent (from more than 13,300 clients) and attracts more than 6,000 CIOs to its events annually. The juggernaut rolls on…
Forrester certainly doesn’t look as comfortable, but it’s not out of the game by a long shot. Less than one-fifth the size of Gartner, the third-largest IT analyst firm now has 2,462 clients, having consolidated its accounts for a single client view, and its client retention rate is just a little lower at 77 per cent. If it adjusts its levers correctly this year, it will stay on track and return to growth.
Both of these firms know that clients will continue to buy information and advisory services from them, whether the economy is good or bad – what differs is what they buy in up and down markets, and how much they pay. Both of these firms still think there’s plenty of upside – this is what they had to say about long term prospects:
“Our level of penetration is very low in all of [our geographic markets], even the US.” Gene Hall, Gartner CEO
“This is a target-rich environment, the market opportunity is as big as ever.” Mike Morhardt, Forrester CSO
Sounds like a good business to be in… what do you think?