Forrester declares a loss, shares fall 11%

Given the scale of the surprise, the 11% fall in Forrester shares on April 27 was a vote of confidence by comparison. Although the firm has been consistently profitable in recent quarters, it has often surprised many many (and sometimes all) Forrester watchers with its earnings. This first quarter of 2018 has been, in some ways, the biggest shock: the firm recorded a loss although the consensus was that it would announce profits around 6 cents per share.

Any firm that loses more than 10% of its capitalization in one day will have a hard time with shareholders, but it could have been much worse than this.

Customers’ complaints about Forrester

On the same day as Forrester’s announcement, the IIAR organised a call on negotiating with Forrester. The tone of the call was, overall, neutral to positive. Forrester has a lot to be proud of, and it has many delighted customers. According to an article published on the IIAR’s website in advance of that call, colleagues from many of Forrester’s major clients had the opportunity to discuss a range of concerns:

  • salespeople are pushing clients hard to pay 10% to 20% more for their services, and to buy both extra research and structured consulting activities like TEIs;
  • Forrester always has staff coming and going (recently including Peter O’Neill who is now a director at Kea Company);
  • Focus areas and the commitment to updating research coverage seemed uneven;
  • Consulting is growing while the research heart of the business seems to be a bit neglected.

IIAR discussions happen under strict Chatham House rules, so it should not be associated with my opinion on Forrester’s business performance. However, it seems to me that the IIAR’s article correctly indicates some of the customer experiences underlying Forrester’s results, which showed a notable contraction of the research business, balanced by a smaller rise in consulting revenue.

It could have been worse

One analyst expected Forrester loss to be much lower (-3 cents, rather than -1) however the Zacks’ consensus estimate of $0.06 was way out. Forrester’s shareholders and analysts will wonder why the first was not able to restate its guidance earlier. However, as mentioned earlier, they are used to surprises. This time last year, Forrester reported a 16 cent per share profit against an expectation of just 8 cents.

Our feeling, on the basis of a few short conversations today, is that analysts and customers remain positive about the firm… for now.