Forrester's (FORR) Q2 2025 Earnings: Undervalued Amid Revenue Declines and AI Innovation

Forrester Research Inc. (NASDAQ: FORR) has long positioned itself as a leader in AI-driven research and insights. Its Q2 2025 earnings report, however, paints a mixed picture: while the company faced revenue declines and macroeconomic headwinds, its strategic pivot to AI innovation—particularly its Izola platform—has sparked optimism about long-term value creation. This article examines whether Forrester's stock is undervalued amid these dynamics and evaluates the investment case for a rebound in a market-leading firm navigating turbulent times.

A Challenging Quarter, But Resilience in Earnings

Forrester reported Q2 2025 GAAP revenue of $111.7 million, slightly above analyst estimates but down 8.3% year-over-year. Adjusted earnings per share (EPS) of $0.51 also fell short of prior-year performance, reflecting broader industry pressures. The decline was driven by weaker demand in consulting and events, alongside a 7.4% drop in contract value to $288.7 million. Full-year revenue guidance of $400–410 million implies a projected decline of 5.2–7.5%, underscoring the company's struggle to offset macroeconomic volatility.

Yet, Forrester demonstrated financial resilience. Operating expenses were trimmed to $104.7 million, and liquidity improved dramatically: net cash from operations surged to $23.1 million, compared to a negative $2.3 million in Q2 2024. With a cash balance of $134.9 million, the company has a buffer to weather near-term challenges.

Historically, Forrester's stock has shown mixed performance following earnings releases, with a 3-day win rate of 28.57% but an average decline of -3.74% over three days and -4.09% over ten days. This suggests that while some periods have seen gains, the overall trend has been negative in the short term.

AI Momentum: The Izola Advantage

Amid the revenue struggles, Forrester's AI platform, Izola, emerged as a bright spot. No longer in beta, Izola now integrates into core research methodologies, enabling real-time scenario modeling, hyper-personalized insights, and conversational analysis of reports. In June 2025, over half of all Izola prompts originated from clients seeking deeper analysis within specific reports, signaling strong adoption.

Client engagement metrics are impressive: usage of Izola increased by 22% quarter-over-quarter, with prompt volume rising 44%. The platform is also driving engagement within Forrester Decisions, where generative AI ranks among the top three initiatives for all 14 services. By curating and certifying AI service providers like ZS and Genesys, Forrester is building a revenue ecosystem around its AI partner network, further differentiating itself in a crowded market.

Strategic Clarity: AI Governance and Agentic AI

Forrester's strategic focus on AI governance and agentic AI is a key differentiator. The company has positioned itself as a thought leader in navigating regulatory shifts like the EU AI Act, offering governance frameworks that blend compliance with performance optimization. Collaborations with industry leaders to develop personalized AI agents for customer experience workflows highlight its ability to translate abstract AI concepts into tangible business outcomes.

According to Forrester's Predictions 2025: Artificial Intelligence report, 40% of highly regulated enterprises will combine data and AI governance in 2025. This trend aligns with Forrester's expertise, creating a niche where it can leverage its research and advisory capabilities to capture premium pricing.

Valuation Metrics: A Case for Undervaluation?

Forrester's stock trades at a price-to-sales (P/S) ratio of 0.50 and a forward P/E of 8.55, significantly lower than peers like ICF International (P/S 1.73) and Booz Allen Hamilton (P/S 1.12). A PEG ratio of 0.61 suggests the stock is undervalued relative to expected earnings growth. Analysts have set a neutral rating, with a price target of $9.50, implying a marginal downside from the current $10.94.

However, Forrester's valuation must be weighed against its financial challenges. The company's GAAP operating margin is projected to be negative in 2025 due to a $83.9 million goodwill impairment charge. While liquidity is strong, recurring revenue metrics like contract value and wallet retention remain under pressure, particularly among smaller clients.

Investment Case: Balancing Risks and Opportunities

Forrester's investment appeal hinges on its ability to convert AI innovation into sustainable revenue growth. The Izola platform has shown strong product momentum, and its strategic focus on governance and agentic AI positions it to capitalize on industry trends. However, the company must address near-term revenue declines and profitability challenges.

Key risks to consider:
1. Macroeconomic headwinds: Prolonged economic uncertainty could delay enterprise AI adoption.
2. Execution risks: Scaling Izola's value proposition to drive new bookings and renewals remains unproven.
3. Competitive pressures: Broader players like Gartner may accelerate their AI offerings, diluting Forrester's niche.

Catalysts for a rebound:
1. AI adoption acceleration: As enterprises prioritize AI governance, Forrester's expertise could drive premium pricing.
2. Cost discipline: Continued operating leverage could improve margins and free cash flow.
3. Strategic partnerships: Expanding its AI partner ecosystem could unlock new revenue streams.

Conclusion: A High-Risk, High-Reward Play

Forrester's stock appears undervalued on a relative basis, but its investment case is not without risks. The company's AI innovations, particularly Izola, offer a compelling long-term narrative, but near-term execution and macroeconomic factors will determine its success. Investors with a 3–5 year horizon and a tolerance for volatility may find Forrester appealing, especially if it can demonstrate progress in client retention, margin expansion, and AI-driven revenue growth.

For now, a cautious “watch and wait” approach is prudent. Forrester's strategic clarity and product momentum suggest potential, but the market will need to see tangible results before betting on a rebound.