We view our investment in Gartner, Inc. (IT, Financial) as representative of the Core Growth cohort. Gartner is the world’s leading provider of syndicatedresearch serving end users in technology, HR, finance, sales, marketing, and legal departments. We estimate that Gartner’s addressable market exceeds $100 billon of annual recurring revenue, which is at least 25 times larger than its current research business. This provides ample runway for sustained mid-teens recurring revenue growth. Gartner has created large and growing barriers to entry through its brand, its intellectual property, and its unique positioning at the intersection of buyers, sellers, and customers. The company enjoys dramatic scale advantages in the number of analysts, number of quota-carrying salespeople, and gross margin dollars, all of which help to extend barriers to entry. Gartner’s products deliver meaningful ROIs to customers by offering on-demand access to proprietary expertise for a low annual subscription. This helps its products become deeply embedded in customer workflows, facilitating annual price increases of 3% to 6% and dollar retention rates that exceed 100%. Gartner sells its research on a subscription basis with annual contract terms and upfront cash payments, creating strong revenue visibility and a working capital tailwind. As noted previously, this business model carries high incremental gross margins due to the low marginal cost of goods sold, and an ongoing mix shift towards its Research segment. While this is obscured by aggressive sales headcount additions, persistent productivity increases should drive EBITDA margin expansion over time. Finally, Gartner is extremely cash generative, which management has deployed to make growth-enhancing acquisitions and to aggressively repurchase stock.
We have owned Gartner since 2007, when the company generated $1.0 billion in revenue and $1.15 free cash flow per share. In 2021, Gartner will generate $4.6 billion of revenue and around $11.50 of free cash flow per share. This represents an 11% CAGR in revenue and an 18% CAGR in FCF/ share over the past 14 years. We expect to see a similar growth trajectory going forward, with similarly positive stock performance.
Gartner, Inc., a provider of syndicated research, contributed to performanceafter reporting financial results that exceeded Street estimates. Growth in the company’s research business has reaccelerated to double-digit levels. Research growth is led by the company’s GBS segment, which is benefiting from a multi-year investment cycle. We expect improved revenue growth and focus on cost control to drive margin expansion and enhanced cash generation. The company’s balance sheet is in excellent shape and can support aggressive share repurchases and bolt-on acquisitions.
From Ron Baron (Trades, Portfolio)'s Baron Growth Fund third-quarter 2021 letter.
