Forrester Research’s management sounded confident when they announced the firm’s quarterly results this week, but shareholders are not.
The firm’s earnings call said that 50 jobs have been cut to rebalance the business. On the call, just two analysts were announced to have agreed to leave, ensuring minimal impact on research. Nevertheless, Scott Santucci, Stefan Ried and “rock star’ analyst Josh Bernoff have announced their departures. Forrester is actively hiring and, by the end of the financial year, hopes to have 7% more staff.
The firm’s stock price, however, is not so buoyant. Over just ten weeks, the price fell from $41.15 (12 November) to $36.34 (on January 21), reducing the firm’s market capitalization by more than $90 million. Forrester closed at $37.61 yesterday, still $65 million down.
According to our research last summer, the change is not caused by the content of Forrester’s research. Outside Asia-Pacific, where the firm is weakest, it remains one of the top three companies in every segment of our 2014 analyst firm awards.
Forrester’s readership is changing, however. Kea Company’s 2014 Analyst Value Survey showed that Forrester’s hold on its potential audience is shrinking, especially in the freemium readership that is transforming the analyst industry. In 2014, Forrester was used by 65% of survey participants whose companies subscribed to analyst firms. That’s an impressively large number, despite being down on the 2013 percentage. Importantly, just 41% of those without corporate subscriptions use Forrester. Forrester’s audience is (like many of the top ten analyst houses) too small in the freemium segment, which is now the majority of the audience for analyst research. Of course, 41% isn’t a terrible percentage: Forrester’s the second largest analyst house, and it has a significant audience. That said, any analyst firm should look at the ratio between its freemium audience and the premium (subscription-paying) clientele. Some firms can get more freemium readers per client than Forrester does (such as IDC).
In 2014, the firm did more work but made less money. The financial year results announced this week, Forrester’s revenues went up $14.4 million, but net income was $2 million lower. That’s a turn off for folk like Claus Moller, the Danish activist shareholder whose firm recently cut part of its substantial holdings in Forrester. Moller’s stake fell from 6% to 5% so I don’t think explains a 9% fall in the stock price (if it did, then he should sell the other 5% quickly). Moller’s sale was announced on January 21st, and the price trended up after that. Moller’s smaller stake shows that he does not think there’s a better growth potential there than elsewhere. Indeed, Forrester recently gave a pile of options to the CMO. They have a pretty modest strike price of $38.88.
None of this is good news for Forrester’s shareholders, customers or for the companies that it researches. Forrester has a simple solution: stop losing share of voice, and win a bigger audience. Freemium readership does not reduce sales: it boosts Forrester’s brand and credibility, helping more professionals to understand what the firm has to offer. Forrester knows how to do that: its webinars and social media work shows that the company knows how to move some of the insights that its analysts have into the firm’s operations and sales enablement. Forrester’s challenges are, therefore, to grow both the premium clientele and the freemium audience, and to grow revenues faster than costs. It didn’t do that last year, and I think it should do this year.
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