AI Initiatives Izola And FD Platform Will Boost Future Client Engagement

Key Takeaways

• Migration to Forrester Decisions platform and AI-driven services will enhance client retention and engagement, driving future revenue growth and earnings.
  
• Strategic focus on C-level sales and divestiture of non-core assets boosts sales efficiency and investment in high-growth areas, enhancing net margins.
  
• Forrester faces significant revenue declines across various segments, leading to decreased profitability, financial pressure, and potential challenges in growth and investor confidence.

Catalysts

Operates as an independent research and advisory company in the United States and internationally.

• Successful migration to the Forrester Decisions (FD) platform is expected to lead to improved client retention metrics and contract value stabilization, positively impacting future revenue growth.
  
• Introduction of AI-driven services and tools like the FD service for data, AI, and analytics leaders, and the generative AI research portal Izola, aims to attract new clients and increase engagement, potentially boosting revenue and earnings.
  
• Strategic focus on selling to C-level executives and implementing a robust sales methodology is expected to enhance sales efficiency and client acquisition, which could drive revenue and improve net margins.
  
• Divestiture of non-core assets, such as the FeedbackNow product line, allows for increased focus and investment in high-growth potential areas like Forrester Decisions, potentially enhancing future earnings and net margins.
  
• Efforts to improve the consulting and events segment and their integration with the Forrester Decisions platform suggest potential revenue stabilization and growth in these areas, contributing to overall revenue and earnings performance.

Forrester Research Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Forrester Research's revenue will decrease by 0.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.5% today to 8.8% in 3 years time.
• Analysts expect earnings to reach $39.5 million (and earnings per share of $2.07) by about December 2027, up from $-6.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.7x on those 2027 earnings, up from -43.5x today. This future PE is lower than the current PE for the US Professional Services industry at 25.0x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.72%, as per the Simply Wall St company report.

Forrester Research Future Earnings Per Share Growth

Risks

• Forrester is experiencing revenue declines, with a 10% drop in the third quarter and expectations of a mid-single-digit decline in its Research business for the year, which could negatively impact overall earnings.
  
• Contract value (CV) is either stable or slightly declining and is projected to be flat to marginally down for the full year, potentially affecting future revenue growth.
  
• The company’s Consulting and Events businesses are experiencing significant revenue declines, down 17% and 54% respectively in Q3, which could impact profitability and overall margins.
  
• Forrester's net income and earnings per share decreased by 35% and 34%, respectively, compared to the previous year, indicating financial pressure that might affect investor confidence and share price.
  
• Operating income is down 33% due to revenue declines in consulting and events, and headcount has decreased by 8%, which might affect the company’s ability to expand and innovate, potentially impacting future growth and earnings.

Valuation

• The analysts have a consensus price target of $20.0 for Forrester Research based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $450.6 million, earnings will come to $39.5 million, and it would be trading on a PE ratio of 11.7x, assuming you use a discount rate of 6.7%.
• Given the current share price of $15.67, the analyst's price target of $20.0 is 21.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.