Executive Summary / Key Takeaways

• Forrester Research has substantially completed its multi-year transition to the Forrester Decisions (FD) platform, shifting its focus entirely to selling and supporting this core research product designed for senior executives.
• The company is leveraging technological differentiation, particularly its proprietary generative AI tool Izola and enhanced interactive research tools, to improve client engagement, accelerate insight delivery, and strengthen its competitive moat, especially in the burgeoning AI research space.
• Despite recent revenue declines (10% in Q1 2025) and a significant goodwill impairment charge ($83.9 million in Q1 2025) driven by macroeconomic volatility and a stock price decline below book value, management maintains a full-year 2025 revenue guidance range of $400 million to $415 million, anticipating improved performance in the second half.
• Key operational metrics like multi-year contract penetration (73% of CV in Q1 2025) and sales pipeline activity are showing positive trends, reflecting progress in optimizing the go-to-market motion and targeting larger clients, although sales cycles have elongated.
• While facing persistent macroeconomic uncertainty, government spending headwinds, and intense competition from larger, more profitable peers like Gartner (IT) and S&P Global (SPGI), Forrester's investment thesis hinges on successful execution of its refined go-to-market strategy and the value proposition of its FD platform and AI capabilities driving future CV growth and profitability stabilization.

Setting the Stage: A Research Firm's Strategic Pivot

Forrester Research, Inc. ($FORR) operates at the intersection of business and technology, providing research, data, and advisory services to help leaders navigate complex challenges and make informed decisions. In an industry populated by large, established players like Gartner ($IT), FactSet (FDS), S&P Global ($SPGI), and Morningstar (MORN), Forrester has historically carved out a niche, emphasizing customer obsession and the interconnectedness of technology and business strategy.

Beginning in 2021, Forrester embarked on a significant, multi-year transformation, described by management as a "transition to a new company." The core of this pivot was the migration to the Forrester Decisions (FD) platform, a unified research offering designed to serve higher-level executives and facilitate deeper engagement across client organizations. This strategic shift aimed to move the company away from a fragmented product portfolio and a reliance on smaller clients, towards a model centered on a single, powerful platform with a continuous guidance architecture. Unlike traditional research libraries that offer static reports or consulting projects that provide discrete, time-bound advice, Forrester Decisions is built to deliver ongoing, integrated support, pairing deep research with direct access to analysts to guide clients through evolving challenges. This continuous guidance model is a key differentiator, aiming to embed Forrester more deeply within client workflows and initiatives.

Concurrently, the company made a deliberate decision to deemphasize smaller tech vendors (those below $50 million in revenue) in favor of focusing on larger corporate clients. This strategic refinement, while impacting overall client count, has contributed to an increase in contract value (CV) per client and a growing percentage of CV derived from multi-year contracts, which reached an all-time high of 73% in Q1 2025. By the end of 2024, the migration to Forrester Decisions was substantially complete, with approximately 80% of total CV residing on the new platform, allowing the entire organization to focus its efforts on selling and supporting this core offering.

Technological Edge in the AI Era

A critical component of Forrester's strategic evolution and competitive positioning is its investment in technology, particularly in the realm of Artificial Intelligence. The company views AI as not only a vital research topic for its clients but also a transformative force for its own operations and product delivery.

At the forefront of Forrester's technological differentiation is Izola, a proprietary generative AI research portal. Developed internally, Izola is built upon a large language model trained on the full corpus of Forrester's extensive research database. This tool allows Forrester Decisions clients to engage in conversational queries with the research, generating synthetic answers drawn from reports, graphics, and Forrester Wave evaluations. This capability offers a significant advantage over traditional keyword search, enabling clients to access insights faster and create new syntheses of information. Management highlights Izola's rapid adoption, noting it became the third most used feature on the FD platform by Q3 2024 and is expected to surpass traditional search in the near future. Specific performance metrics underscore its effectiveness: in Q2 2024, Izola's ability to answer questions from a single prompt reached 91%, and prompts increased by 40% quarter-over-quarter in Q3 2024. Informal research in Q4 2024 also suggested a strong correlation, with heavy Izola users renewing at 20% higher rates.

Beyond Izola, Forrester has enhanced the FD platform with other technology-driven tools. A major update to the iconic Forrester Wave in 2024 introduced an interactive tool, allowing clients to customize vendor evaluations based on their specific priorities and easily compare offerings. In Q1 2025, a new interactive data tool was launched, enabling clients to query survey data sets by vertical, demographics, and geography. These tools leverage Forrester's deep data assets and research methodologies, providing clients with actionable, tailored insights.

The strategic "so what" of these technological advancements for investors is multifaceted. These tools enhance the value proposition of the Forrester Decisions platform, making the research more accessible, personalized, and actionable. This improved client experience is intended to drive higher engagement, improve retention rates, and support enrichment and cross-sell efforts within client accounts. Furthermore, by positioning itself as a leader in AI research and deployment (being the only research company of scale to build its own LLM), Forrester aims to attract and retain clients grappling with their own AI strategies, solidifying its relevance in a rapidly evolving market. The use of AI for internal efficiencies, such as streamlining customer success and analyst workflows, also holds potential for future cost savings and margin improvement.

Performance and Financial Health: Navigating the Transition's Wake

Forrester's financial performance over the past year reflects the complexities of its strategic transition and the challenging macroeconomic backdrop. Total revenue declined by 10% in Q1 2025 compared to the prior year period, following a 9% decline in Q4 2024 and a 10% decline for the full year 2024. This top-line contraction was primarily driven by decreases in the core Research segment (down 11% in Q1 2025) and the Consulting segment (down 7% in Q1 2025). The Research decline was attributed to a decrease in Contract Value (CV), the divestiture of the non-core FeedbackNow product line in Q3 2024, and declines in legacy and reprint products, partially offset by growth in Forrester Decisions revenue. The Consulting decline stemmed from lower delivery volumes due to reduced client bookings, reflecting broader market hesitancy and reduced discretionary spending. Events revenue remained insignificant in Q1 2025, as no events were held.

Despite the revenue pressures, Forrester has demonstrated a commitment to cost management. Operating expenses decreased in Q1 2025, primarily due to lower compensation and benefit costs resulting from workforce reductions (including a 6% reduction in January 2025). This cost discipline contributed to operating income exceeding consensus estimates in Q1 2025, although operating income and margins were lower year-over-year due to the revenue decline.

A notable event in Q1 2025 was the recording of an $83.9 million goodwill impairment charge related to the Research reporting unit. Management explained this non-cash charge was triggered by a significant and sustained decline in the company's stock price and market capitalization from mid-February to March 31, 2025, which caused the market value to fall below the book value. This, combined with macroeconomic conditions and lower-than-expected Q1 bookings, necessitated the write-down. Management emphasized that this charge does not reflect lowered expectations for the long-term future of the business, but it highlights the sensitivity of the balance sheet to market valuation fluctuations.

From a liquidity perspective, Forrester's balance sheet remains relatively strong. As of March 31, 2025, the company held $134.3 million in cash, cash equivalents, and marketable investments.

Cash flow from operating activities saw a significant improvement in Q1 2025, reaching $26.7 million, up from $0.6 million in the prior year period. This increase was primarily driven by decreased cash used for accrued expenses, including lower year-end incentive compensation payments and the absence of a legal settlement payment made in Q1 2024. The company has a $150 million revolving credit facility with $35 million outstanding as of March 31, 2025, and was in full compliance with its financial covenants. Management expects to return to positive free cash flow in 2025, supported by anticipated bookings improvement and continued cost management.

Competitive Landscape and Positioning

Forrester operates within a competitive landscape dominated by larger, more diversified firms. Gartner ($IT), the largest player, offers a broad suite of research, advisory, and events services, known for its widely recognized Magic Quadrant reports and extensive data. FactSet ($FDS), S&P Global ($SPGI), and Morningstar ($MORN) are strong competitors in data and analytics, particularly within the financial sector, leveraging scale and proprietary data integration.

Quantitatively, these larger peers generally exhibit stronger financial performance metrics. Gartner ($IT), FactSet ($FDS), and S&P Global ($SPGI) typically report higher operating margins (often exceeding 20-30%) compared to Forrester's recent adjusted operating margin guidance of 8-9% for 2025. They also demonstrate more consistent revenue growth, while Forrester has experienced declines during its transition period. This difference in scale and profitability presents a challenge for Forrester, potentially impacting its investment capacity relative to competitors.

However, Forrester aims to differentiate itself through its specific focus and service model. Its emphasis on customer obsession and the integration of business and technology research provides a distinct perspective. The Forrester Decisions platform, with its continuous guidance model and direct analyst access, is positioned as a unique offering that goes beyond traditional research libraries or discrete consulting projects. Management highlights client feedback suggesting Forrester is viewed as affordable with high ROI compared to high-cost consultants like McKinsey and Bain.

Furthermore, Forrester is actively leveraging its technological advancements, particularly Izola, as a competitive advantage. While competitors are also investing in AI, Forrester's development of a proprietary LLM trained on its specific research corpus is presented as a unique capability that enhances the value and accessibility of its insights. This technological edge, combined with its deep domain expertise in areas like customer experience and AI strategy, is intended to strengthen its competitive moat and drive client value, particularly among larger enterprises and government agencies seeking alternatives to dominant players. The company sees opportunities in the government sector, where agencies are looking for alternative research providers and have a strong focus on areas like AI and cybersecurity, aligning with Forrester's strengths.

Outlook and Risks

Forrester's outlook for 2025 is framed by the completion of its product transition and the ongoing efforts to optimize its go-to-market execution amidst persistent external challenges. Management has maintained its full-year 2025 guidance, projecting revenue in the range of $400 million to $415 million, representing a decrease of 4% to 8% compared to 2024. This outlook anticipates a challenging first half of the year due to the impact of bookings declines in 2024, with an expectation for better performance in the second half as go-to-market initiatives gain traction. The guidance assumes mid-single-digit declines across all three segments: Research, Consulting, and Events. Adjusted operating margins are projected to be between 8% and 9%, with earnings per share in the range of $1.20 to $1.35.

The company's expectation for Contract Value (CV) has been adjusted slightly, now anticipated to be flat to slightly down for the full year 2025, reflecting the challenging operating environment experienced in Q1. Management's confidence in the guidance is based on a balanced view of potential risks and opportunities, including anticipated improvements in sales execution, the benefits of the completed FD migration, and opportunities in specific areas like government and AI research. They explicitly state that the guidance is not based on a recessionary scenario.

However, significant risks and challenges persist. Macroeconomic volatility, including the impact of tariffs and trade policies, continues to create uncertainty, leading to budget tightening and elongated sales cycles (approximately 10-12 days longer in Q1 2025). Government efficiency efforts (DOGE) are expected to remain a slight headwind, potentially leading to further contract cancellations in a sector that constitutes less than 6% of total CV but is strategically important. The company's ability to successfully optimize its go-to-market motion, particularly reaching and expanding relationships with C-level executives, is critical for driving future growth and improving retention metrics like wallet retention, which saw a 3-point decline from Q4 2024 to Q1 2025. Furthermore, while the Q1 2025 goodwill impairment was a non-cash charge, the risk of future impairments of goodwill or other long-lived assets remains if business conditions deteriorate or the stock price experiences further sustained declines. The collectability of the note receivable from the FeedbackNow divestiture also presents a financial risk, as highlighted by the allowance for credit losses recorded in Q1 2025.

Conclusion

Forrester Research stands at a pivotal juncture, having largely completed its ambitious transformation to the Forrester Decisions platform. The company's strategic narrative is now firmly centered on executing its refined go-to-market strategy and leveraging its differentiated technology, particularly its AI capabilities, to drive future growth and enhance client value. While the recent financial performance reflects the headwinds of this transition period and a volatile macroeconomic environment, key operational indicators suggest progress in areas critical for long-term success, such as increasing multi-year contract penetration and improving sales pipeline activity.

The investment thesis for Forrester hinges on the successful realization of the benefits from its completed transition and strategic focus. The ability to effectively sell and support the Forrester Decisions platform, capitalize on the unique value proposition of its continuous guidance model and AI-powered tools like Izola, and navigate competitive pressures from larger peers will be paramount. While macroeconomic uncertainty and specific sector headwinds present ongoing risks, management's maintained 2025 guidance signals an expectation for stabilization and a return to improved performance in the latter half of the year. Investors will need to closely monitor the company's execution against its strategic priorities, particularly improvements in CV growth and retention metrics, as the success of the post-transition playbook unfolds.