Earnings calls can make or break a stock. These quarterly meetings are some of the few times throughout a year where management can speak directly with shareholders, giving teams the opportunity to address headwalls and investor concerns, highlight business successes, and share future outlook.

Because of the scarcity of these calls and the amount and quality of information that can be disclosed during them, earnings calls often act as catalysts for the most significant price movements stocks see each year.

Yesterday, IT consultant Gartner (IT) experienced this reality first hand after its stock price declined more than 25% following its second-quarter earnings call.

Second-quarter revenue grew 6% year-over-year, beating analyst estimates, while earnings per share also came in higher than expected.

That said, despite positive results in the most recent quarter, the market was far more concerned with management’s guidance revision.

Gartner lowered its full-year revenue guidance from $6.53 billion to $6.45 billion in 2025, below the market’s consensus estimates which were closer to $6.54 billion.

Gartner’s previous guidance was already slightly below the market’s projection, highlighting investors’ former optimism.

However, any optimism has largely vanished after the market realized the extent of Gartner’s headwinds. 

The company sees the Department of Government Efficiency, or DOGE, and tariffs as significant challenges for both the company’s revenue and profitability.

DOGE has made it more difficult for clients to purchase or renew Gartner products, while companies increasingly implement cost-cutting measures to weather the impacts from tariffs.

And with 35% to 40% of Gartner’s contract value now coming from industries affected by tariffs, the company stands to struggle if its clients continue their cost-cutting efforts.

After cutting top-line revenue guidance, markets are now reevaluating Gartner, resulting in the stock sell off we witnessed this week.

To get a better understanding of the market’s expectations and the impact of Gartner’s guidance, we can use our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

Prior to Gartner’s second-quarter earnings call, the market was forecasting long term revenue growth of 4.6% annually. 

Gartner’s initial revenue guidance called for 4.1% growth, slightly below market expectations. However, its recent projection of just 2.9% growth would be the company’s worst performance in more than a decade, outside of 2020 pandemic-related struggles.