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    GARTNER (IT)

    IT Q2 2025: Tariff Headwinds Hit 35-40%, Double-Digit Pipeline

    Reported on Aug 5, 2025 (Before Market Open)
    Pre-Earnings Price$336.71Last close (Aug 4, 2025)
    Post-Earnings Price$242.49Open (Aug 5, 2025)
    Price Change
    $-94.22(-27.98%)
    • Tariff Recovery Potential: Management highlighted that tariff‐impacted industries make up about 35%–40% of contract value, with expectations that normalizing trade policies could add approximately 100 to 200 basis points to growth in coming years, positioning the company for a return to double‐digit expansion.
    • Robust New Business Pipeline: Executives emphasized that new business pipelines in both the Global Technology Services (GTS) and Global Business Services (GBS) segments are growing at double-digit rates, driven by strong demand for mission‐critical insights in areas such as AI, cybersecurity, and finance transformation.
    • Innovative AI Adoption Enhancing Efficiency: The rollout of AskGartner—a Gen AI tool available to all licensed users—and the use of over 50 custom internal AI applications demonstrate a commitment to improving operational efficiency and deepening client engagement, which supports future earnings growth.
    • Tariff Impact on Business: Approximately 35–40% of contract value is in tariff‐impacted industries, leading clients to aggressively cut costs and escalate decision-making to higher executives. This not only slows down the sales cycle but may also hinder revenue growth in an environment already pressured by tariffs [Speaker 5, Q&A] [Speaker 8, Q&A].
    • Challenges in US Federal Contracts: The changing procurement processes—especially due to DOGE initiatives—are making it more difficult for clients to purchase or renew contracts. Low dollar retention rates in the US federal segment, along with ongoing regulatory challenges, present significant headwinds for future growth [Speaker 4/Q&A] [Speaker 8, Q&A].
    • Extended Sales Cycle Impact: The trend of escalating small purchase decisions from functional leaders to senior executives has significantly extended the deal-closing timeline, potentially delaying revenue recognition despite a strong pipeline. This extended process exacerbates uncertainty around near-term earnings and growth prospects [Speaker 1, Q&A] [Speaker 14, Q&A].
    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Insights Revenue ($USD)

    FY 2025

    no prior guidance

    At least $5,255,000,000, FX neutral growth of about 2%, including subscription insights revenue growth of about 4% and around $210,000,000

    no prior guidance

    Conferences Revenue ($USD)

    FY 2025

    At least $625,000,000, FX neutral growth of about 6%

    At least $625,000,000, FX neutral growth of about 5%

    no change

    Consulting Revenue ($USD)

    FY 2025

    At least $575,000,000, reflecting growth of about 2% FX-neutral

    At least $575,000,000, FX neutral growth of about 1%, unchanged from the previous quarter

    no change

    Consolidated Revenue ($USD)

    FY 2025

    At least $6.535 billion, FX-neutral growth of 4%

    At least $6,455,000,000, FX neutral growth of 2%

    lowered

    Full Year EBITDA ($USD)

    FY 2025

    At least $1.535 billion, up $25 million from prior guidance

    At least $1,515,000,000, down $20,000,000 from prior guidance, reflecting margins of 23.5%

    lowered

    2025 Adjusted EPS ($USD)

    FY 2025

    At least $11.70, up about $0.25 from last quarter

    At least $11.75, an increase from the previous quarter

    raised

    Free Cash Flow ($USD)

    FY 2025

    At least $1.145 billion, reflecting a conversion from GAAP net income of 137%

    At least $1,145,000,000, unchanged from prior guidance, reflecting a conversion from GAAP net income of 141%

    no change

    Fully Diluted Weighted Average Shares Outstanding

    FY 2025

    Based on 78 million shares, reflecting repurchases made through the end of the first quarter

    Based on 77,000,000 shares, incorporating repurchases made through the end of the second quarter

    lowered

    Q3 Adjusted EBITDA ($USD)

    Q3 2025

    no prior guidance

    At least $300,000,000

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    Contract Value Growth

    Q4 2024 reported strong, broad‐based growth at 8% year‐over‐year with detailed segmentation (e.g. GTS and GBS) , and Q3 2024 showed 7% growth across segments.

    Q2 2025 reported overall CV growth at 5% year‐over‐year, with segmentation differences (e.g. US federal versus non-federal) and expectations for acceleration in future periods.

    Deceleration in the current period due to specific challenges, with a view to future acceleration.

    Pipeline Momentum

    Q4 2024 noted a robust pipeline including tech vendor growth and normalization , and Q3 2024 highlighted a strong pipeline for GTS enterprise leaders, with new business rebounds.

    Q2 2025 described pipeline momentum as maintaining very good double-digit growth yet noted longer deal closing times due to escalated purchasing processes.

    Consistent strength across periods but with increased sales cycle durations in the current period.

    Government Contract Challenges and Regulatory Uncertainty

    Q4 2024 mentioned support for public sector leaders and acknowledged potential government changes. Q3 2024 did not address this topic.

    Q2 2025 provided detailed discussion of significant challenges with US federal contracts driven by initiatives such as DOGE, along with regulatory uncertainties impacting renewals.

    Emerging with greater negativity in the current period compared to earlier mentions.

    Sales Cycle Delays and Sales Force Productivity Issues

    Q3 2024 focused on productivity improvements through training and ramp-up programs , and Q4 2024 emphasized improved productivity without mentioning delays.

    Q2 2025 highlighted extended sales cycles due to tariff impacts and government challenges, along with active territory optimization to boost productivity.

    A shift toward recognizing longer sales cycles despite ongoing productivity initiatives, indicating worsening delays.

    Non-subscription Revenue Pressure

    In Q3 2024, pressure was noted by year-over-year comparisons with lower nonsubscription revenue, and Q4 2024 discussed challenges alongside expectations for stabilization.

    Q2 2025 noted ongoing pressure due to shifts in traffic volumes with a forecast of around $210 million for 2025.

    An ongoing challenge with similar adverse sentiment across periods.

    Innovative AI Adoption and Efficiency Gains

    Q3 2024 saw emphasis on client support for AI, including prototypes and internal use , and Q4 2024 discussed using AI (including generative AI) to drive modest productivity improvements.

    Q2 2025 highlighted AI as a top client demand, introduced the “Ask Gartner” tool, and noted the deployment of approximately 50 custom-built internal AI applications.

    Consistent and growing emphasis on leveraging AI both externally and internally, with very positive sentiment.

    Tariff Impact and Trade Policy Normalization

    This topic was not mentioned in Q3 2024 or Q4 2024 [N/A].

    Q2 2025 provided detailed commentary on the adverse effects of tariffs on industries, noting that 35%–40% of CV is affected, while also indicating an expectation of trade normalization in the future.

    A new topic emerging in the current period, with short-term negative impacts but potential long-term benefits as conditions normalize.

    Pricing Power and Inflation Offset

    Q3 2024 and Q4 2024 discussed modest price increases (around 4%) designed to offset wage inflation, tailored to different markets.

    There was no mention of pricing power or inflation offset in Q2 2025 [N/A].

    No longer a focus in the current period [N/A].

    Capital Allocation, Share Buybacks, and M&A Opportunities

    Q3 2024 and Q4 2024 consistently discussed a strong capital allocation strategy with active share repurchases, liquidity strengths, and strategic tuck-in M&A.

    Q2 2025 continued this theme with a strong balance sheet (liquidity at $2.9 billion), active buybacks totaling significant repurchases, and mention of strategic, smaller M&A targets.

    Stable and consistent focus, reinforcing shareholder value with slight liquidity improvements noted.

    Tech Vendor Market Recovery

    Q3 2024 noted that tech vendor CV “turned the corner” with a rebound in new business , and Q4 2024 described recovery with expectations for normalization and medium-term growth (12%–16%).

    Q2 2025 indicated that the tech vendor market is on a path towards double-digit growth despite some delays and tariff effects in hardware sub-segments.

    Continued positive recovery with expectations of further acceleration despite mixed short-term impacts.

    Dynamic Market Conditions and Growth Forecast Uncertainty

    Q3 2024 mentioned resilience in a complex environment with steady guidance adjustments , and Q4 2024 emphasized challenges from geopolitical, supply chain, and cybersecurity dynamics with forecast uncertainty.

    Q2 2025 reported heightened uncertainty including a rapid drop in CEO confidence, widespread cost-cutting measures, and adjustments in guidance to reflect these dynamic challenges.

    Increased uncertainty and more negative sentiment in the current period compared to earlier quarters.

    1. Tariff Impact
      Q: What percent of CV is tariff-affected?
      A: Management explained that about 35–40% of their CV is subject to tariff impacts, with a slightly higher concentration in GBS compared to GTS.

    2. AI Efficiency
      Q: How many AI apps deployed for cost savings?
      A: They’ve implemented roughly 50 internal AI applications aimed at boosting productivity, though it’s too early to quantify long-term cost effects.

    3. Federal New Business
      Q: How are federal government purchases performing?
      A: Despite slower deal closures, new business is still coming in with a dollar retention rate near 47%, even though contracting is more challenging.

    4. Pipeline & AI Risk
      Q: Is AI impacting your sales pipeline conversion?
      A: Their pipeline remains robust with double-digit growth, and while extended sales cycles are noted due to escalated approvals, there’s no drop in close rates, minimizing any AI-related risk.

    5. AskGartner Rollout
      Q: Is AskGartner available to all subscribers?
      A: Yes, AskGartner is being rolled out to all licensed users, with nearly complete penetration planned by year’s end.

    6. Segment Tariff Split
      Q: How is tariff impact distributed in segments?
      A: GBS tends to have a slightly higher reliance on tariff-affected industries compared to GTS, although overall distribution remains similar.

    7. Tariff as a Slowdown Driver
      Q: Are tariffs truly the cause of slower deals?
      A: Detailed deal tracking confirms tariffs are a real driver of extended approval processes during economic stress, consistent with past recessions.

    8. Headcount Expectations
      Q: What’s the outlook for QBH headcount?
      A: They expect QBH headcount to remain roughly flat for the current year, with additional growth anticipated in 2026 and beyond.

    9. Subscription Value Utilization
      Q: Are customers fully using subscription benefits?
      A: Not all clients tap into the full suite of services available, and efforts are ongoing to increase awareness and uptake, though no exact percentage was provided.

    10. Public AI Cancellation
      Q: Are cancellations driven by public AI tool usage?
      A: Management noted that cancellations citing public large language models are essentially non-material and don’t significantly impact subscription renewals.

    11. Client Enterprise Decline
      Q: Why are client enterprise numbers falling?
      A: The decline is mainly attributed to higher churn among small tech vendor accounts, where every client counts as one, regardless of spending.

    12. New Business Drivers
      Q: What’s fueling the robust new business pipeline?
      A: Growth is driven by a balanced mix of new logos, upsell, and cross-sell, particularly in AI and traditional areas like cybersecurity, supporting a strong, double-digit pipeline.

    Research analysts covering GARTNER.