What surprised me was the lack of real coverage that explained what actually happened. Most posts just repeated the headline: “Gartner missed” or “guidance”.

Adjusted EPS was $3.94. Revenue grew 2% to $1.8 billion. Free cash flow was $271 million in the quarter.

They bought back $500 million of stock in Q4 and $2.0 billion for the full year.

The stock still fell because the market fixated on one metric: contract value growth.

In Q4, global contract value reached $5.2 billion but grew only 1% year over year. Ex-U.S. Federal, growth was 4%. That number alone was enough to change perception. Not because it is a collapse, but because it is far from what investors were used to paying for.

This was not driven by client losses.

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Clients are renewing. In Global Business Sales (GBS), client retention was 86% and wallet retention was 99%. The issue was expansion. Companies are keeping Gartner but delaying decisions to add seats, expand usage, or increase scope.

Management described the pattern as budgets are under pressure, approval levels are higher, and buying cycles are longer. When spending decisions move from CIOs to CFOs, expansion slows first. Renewals hold, but growth inside the account gets harder.

Government was a clear headwind.

U.S. Federal clients faced efficiency initiatives and funding changes, and management said this reduced contract value. They also said that at year-end they had only $126 million of U.S. Federal contract value remaining. Ex-federal growth was roughly 330 basis points higher, which helps isolate the impact.

But it was not only government.

In the core Global Technology Sales (GTS) segment, which is roughly $3.9 billion of the total business, contract value was flat year over year. That matters because it shows the behaviour across private enterprise too. This was not a single customer problem. It was broad budget behaviour.

Some investors pointed to AI as the cause. Management pushed back on that.

They said they track whether clients raise AI as a substitute during sales and renewal conversations, and they do not see it as meaningful. They also said AI is the biggest topic clients ask about. Gartner said it produced over 6,000 AI-related documents and had about 200,000 in-depth client conversations on AI in 2025. The message was simple: clients are not replacing Gartner with AI tools. They are using Gartner to make AI decisions.

The seat model is still the pressure point.

Gartner’s model works best when organisations are hiring. Hiring has been flat. When employees leave and roles are not refilled, seats get removed. That hurts expansion even when the relationship is stable.

Management is responding by trying to increase engagement and speed so the value stays clear even when headcount does not grow. They gave an example: they reduced creation time for some high-value research outputs (like Magic Quadrants) by 75%.

Why does that matter?

Because Gartner compounds through renewals. More engagement now can show up as higher contract value later, often 12 to 24 months later when contracts come up for renewal. The company is investing now to affect that later outcome.

Management guided for 2026 revenue of at least $6.455 billion and adjusted EPS of at least $12.30. The market did what it always does: it discounted uncertainty immediately.

Why the market listened, and why other software names moved

Gartner is a read-through on enterprise budgets.

When Gartner says expansion is slower because approvals are tighter and buying cycles are longer, the market applies that logic across other companies that rely on seat growth, upsells, and budget confidence.

That’s why names like $CRM, $NOW, $SAP, and $TTD moved with it. Different products, same behaviour: expansion is the first thing customers delay.

The Nasdaq was down about 2% on the day. In that kind of market, any confirmation of slower demand leads to multiple compression. This was not “bad news.” It was “less certainty.”

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Valuation reset

When a stock drops hard, investors assume the business is in trouble. Sometimes that is true. But sometimes the business is fine and the market is repricing the stock because the growth story changed.

The cash flows can still be there. Retention can still be there. Margins can still be there. What changes is the expected pace of expansion, and the multiple investors will pay while they wait.

That is what this felt like.

Gartner did not show stress in the core subscription model. Renewals held, margins held, and buybacks continued. The market reaction was about contract value growth slowing, which reduces confidence in the next 12–24 months.

When confidence drops, the multiple compresses first. The income statement follows later, if the slowdown persists.

Valuation

Disclaimer: This article is for informational purposes only. It is not financial advice. I am not a financial advisor. I may buy or sell these stocks at any time. You must do your own research before investing

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North America: Selling More, Earning Less

Nike’s biggest market, is a mix of good and bad news.

The good news is that sales are finally growing again. This is a huge signal that the brand is healthy. The bad news is that they made less profit on those sales. There are two main reasons for this. First, they had to discount old inventory to clear it out. Second, and more importantly, tariffs hit them.

Management said these tariffs took a massive bite out of their profits. In fact, if you removed the cost of those tariffs, their profit margins would have actually gone up, not down. This tells me that the business operations are improving, but government fees are eating up the gains.

Greater China

While North America is showing signs of life, China remains a major weakness. Sales there dropped 17%. The company is struggling with intense local competition and mismanagement in the region.

To understand how serious this is, just look at Lululemon. While Nike’s sales are shrinking double-digits in China, Lululemon is growing about 25% in the same market. Nike stock is priced like a fast-growing company, but right now, competitors are the ones actually delivering that growth overseas. This difference is the main reason I currently prefer Lululemon’s position.

The Numbers at a Glance

• Revenue: Sales were essentially flat at $12.4 billion.

• Profit Margins: Dropped significantly, mostly due to the tariffs I mentioned.

• Inventory: They have successfully lowered their stockpile of unsold goods, which is a good sign.

• Cash: Their cash pile shrank by about $1.4 billion because they spent money on dividends and buying back their own shares.

The Outlook: More Pain Ahead

Nike warned that the next few months will still be tough. They expect sales to drop slightly in the upcoming quarter. They also expect profit margins to fall again, almost entirely because of the tariff costs. Without those taxes, they would be making money, but as it stands, their profits will be squeezed. On top of that, they plan to spend more money on marketing to try and boost demand.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. The views expressed here are my own and should not be taken as a recommendation to buy or sell any security. I do not currently hold a position in the stock mentioned in this report. Please conduct your own due diligence or consult a certified financial advisor before making any investment decisions.

My Take

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Lululemon shares jumped more than 10% after earnings, and while that might seem surprising given ongoing concerns about U.S. consumer demand, the reaction becomes understandable once you read the earnings call carefully.

If you want more background, I wrote about this business three months ago in Zero Returns in Six Years, and my thinking hasn’t changed much after this quarter.

Three things mattered most to the market:

• Revenue and earnings per share beat expectations

• International growth remained strong, led by China

• A CEO transition was announced, opening the door for a strategic reset

Lululemon Q3 2025 Earnings: Key Financial Results

• Revenue: $2.6 billion (+7% YoY)

• Comparable sales: +2%

• Gross profit: $1.43 billion

• Gross margin: 55.6% (down 290 basis points)

• Operating income: $436 million

• Earnings per share: $2.59 (down YoY, but above expectations)

Despite margin pressure, Lululemon delivered better-than-expected revenue and EPS, the main reason the stock moved higher.

Lululemon Beat Revenue and EPS Expectations

The earnings beat did not come from North America.
It came from international markets, especially China.

China Mainland

• Revenue growth: +46%

• Comparable sales: +25%

• Strong demand for outerwear

• Q3 benefited from timing of 11/11 e-commerce activity

Rest of the World (Europe & Asia-Pacific)

• Revenue growth: +19%

• Comparable sales: +9%

• Continued store expansion and solid execution

International growth more than offset U.S. weakness.
That stronger-than-expected top line also helped reduce the impact of tariffs and supported earnings per share.

North America Remains the Key Weakness

Management was unusually clear about this.

• Americas revenue: –2%

• Comparable sales: –5%

• U.S. revenue down 3%, Canada roughly flat

Importantly, management does not believe this is a brand problem.

They are still:

• growing total and retained guests,

• acquiring new customers across age groups.

The issue is lower visit frequency and spend, particularly among high-value customers.

They also admitted the product mix in North America is not right. Some core franchises stayed on shelves too long without enough newness. In a more promotional retail environment, consumers are trading down and waiting for value.

This looks like a product-cycle and macro issue, not a deterioration of brand equity.

How Management Plans to Fix the U.S. Business

Management outlined a clear three-pillar turnaround plan.

1. Product Creation

• Increase new style penetration to 35% by next spring

• Shorten product cycles from 18–24 months to 12–14 months

• Build “chase” capabilities to quickly reorder winning products

2. Product Activation

• De-clutter stores so newness stands out

• Improve local store curation

• Upgrade in-store storytelling and website experience

• Use membership initiatives to re-engage high-value customers

3. Enterprise Efficiency

• Offset tariffs through vendor negotiations and supply-chain efficiency

• Selective pricing actions

• Tight cost discipline during the reset

This is not a quick fix.

Margins: Short-Term Pressure

Gross margins declined due to:

• higher tariffs,

• increased markdowns,

• a more promotional consumer environment.

However, margins were better than management originally guided, helped by higher revenue and disciplined expense control.

Profit dollars increased even as efficiency declined.

CEO Transition: Why the Market Liked It

After seven years, the CEO will step down early next year. Interim leadership will run the business while a permanent successor is selected.

From an owner’s perspective, the timing makes sense.

This transition comes:

• at the end of a multi-year plan cycle,

• at a moment when the U.S. business needs renewal,

• while international momentum remains strong.

Markets often welcome leadership change when execution needs improvement but the underlying brand remains intact.

Lululemon 2025 Outlook and Guidance

Management reaffirmed full-year guidance:

• 2025 revenue: approximately $11 billion

• 2025 EPS: $12.92–$13.02

They also flagged a meaningful headwind:

roughly $210 million reduction in operating income from tariffs and the removal of the de minimis exemption (net of mitigation).

Margins will remain under pressure in the near term, particularly in Q4.

My Take as a Shareholder

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It’s rare to see a company of this size grow revenue double-digits and grow profit even faster, and I think this is exactly where the market is overlooking what’s happening.

Revenue was up 15%, and gross profit grew 22%.

What Drove the Numbers

High-margin businesses like domestic games, international games, and advertising are growing faster than the rest of the company. Marketing services grew 21% thanks to AI-targeted ads.

International games reported +43% growth, but management said this spike was a one-off from upfront recognition of Dying Light. My estimate is that this added roughly ¥3.5–4.5B of “extra” revenue this quarter. Without it, overall revenue would have grown closer to 12–13%.

Margin + Cost Efficiency

One thing that jumps out is how efficient Tencent is today. After the pandemic and during China’s economic slowdown, they tightened the organisation and made it leaner, and we still see the benefits today.

G&A grew only 2% while the business grew 15%.
Gross margin improved from 53% to 56%, helped by high-margin game revenue, stronger ads, and better cloud profitability (management said they’ve taken steps to optimise cloud margins and it’s working).

CapEx was down 24%, but not because they’re cutting AI investment. Management clearly said it’s a payment-timing mismatch and chip scarcity — they actually want to spend more, but GPU supply is the bottleneck. So the AI investment story is intact.

Cash + Buybacks

Free cash flow came in at RMB 58.5B, basically flat YoY.
Total cash reached RMB 493B (+16% YoY).
Net cash rose to RMB 102B (+7% YoY).

They continued their buybacks as well, repurchasing 35.4 million shares for roughly HKD 21B.

Overall, this was a very good quarter. Tencent is still one of the few large companies that can grow double-digits, expand margins, and turn that into stronger profit growth. A high-quality business getting stronger.

This is not investment advice. I share my research and views for educational purposes only. Please make your own decisions based on your own judgement.