Q4 2023 Earnings Summary
- Gartner's Global Business Sales (GBS) contract value grew by 13% year-over-year, with growth led by supply chain, legal, and HR segments. This demonstrates strong performance and sustained growth within the company's medium-term objectives. ,
- Management expects the tech vendor segment to reaccelerate to 12% to 16% growth over the medium term, indicating confidence in this segment's ability to contribute significantly to overall growth.
- Gartner addresses a vast market opportunity of approximately $200 billion, with $190 billion outside the tech vendor market, focused on serving enterprise function leaders across GTS and GBS. This positions the company for long-term sustained double-digit revenue growth.
- Potential delays in reacceleration of growth in the tech vendor segment, with management indicating it could take up to 24 months to normalize, longer than previously expected.
- Guidance implies a decline in non-subscription research revenue, with expectations of low double-digit decreases baked into the model.
- Tech vendor clients are adjusting to a normalization of tech spending after a pandemic-related pull-forward, which might indicate ongoing challenges in this market segment.
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Contract Value Outlook
Q: When will CV growth bottom and reaccelerate?
A: We expect contract value growth to bottom during 2024 and begin reaccelerating, driven by improved new business and stabilizing retention, particularly as the tech vendor segment recovers. -
Tech Vendor Retention Issues
Q: How are tech vendor renewals impacting growth?
A: Small tech vendors face funding challenges, leading to retention pressure as some go out of business. This is our biggest drag on the tech sector, but we expect retention to improve as the market normalizes. -
Margin Guidance and Drivers
Q: What are the drivers of margin guidance?
A: With targeted headcount growth and normalizing expenses, we project an EBITDA margin of 23% for 2024. Revenue upside could provide potential margin improvement. -
New Business Growth Sustainability
Q: What is driving strong new business wins?
A: Strong client demand due to our value proposition and modest improvements in the selling environment have led to robust new business growth across markets, serving as a leading indicator for future CV growth. -
Headcount Growth Expectations
Q: Why is headcount growth slowing?
A: We believe we have sufficient selling capacity embedded in our current team. We plan mid- to high single-digit growth in quota-bearing headcount, with the ability to accelerate if the rebound comes faster. -
Non-Subscription Revenue Headwinds
Q: What is the outlook for non-subscription revenue?
A: Non-subscription revenue, about 6% of 2023 revenue, faces headwinds due to tech market pressure and pricing challenges. We are focusing on higher-quality traffic to drive long-term value, impacting short-term revenues but expected to improve pricing over time. -
Tech Vendor Renewal Bubble
Q: Is there a concentration of tech vendor renewals in Q1?
A: Yes, Q1 has a slight overweighting of tech vendor renewals, representing low to mid-30% of overall CV, compared to the usual 25%. We are taking a prudent view on guidance to reflect this. -
Pricing Environment
Q: Are you facing pushback on price increases?
A: We implemented a price increase of a little over 4% in November. Clients are not significantly pushing back, and we continue to focus on providing incremental value without discounting multiyear contracts. -
GBS Growth and Drivers
Q: How is GBS performing?
A: GBS is growing at about 13% year-over-year, with supply chain, legal, and HR segments being the fastest-growing areas, contributing to sustained growth within our medium-term objectives. -
Impact of AI on Business
Q: Is AI driving new business?
A: AI is an area of robust demand due to high interest, but it's one of many areas we cover. It's not causing an extraordinary surge in demand but contributes alongside other client needs.
Research analysts covering GARTNER.