Accenture- Cautious outlook for FY24; clients focusing on cost reduction, limited discretionary demand

Accenture: Cautious outlook for FY24; clients focusing on cost reduction, limited discretionary demand

By Nomura

Accenture (ACN) reported Q4FY2023 revenue of $15.99 billion, showing a 4% y-o-y growth in constant currency (cc) terms. This performance falls within the midpoint of the company’s guidance range, which projected a y-o-y growth of 2%-6% for Q4. However, the consulting revenue exhibited weakness, experiencing a 2% y-o-y decline in CC terms. On the other hand, managed services revenue showed robust growth, increasing by 10% y-o-y, also in CC terms. In verticals, the communications, media, and technology (CMT) sector faced significant challenges, with a substantial 12% y-o-y decline in CC terms. In terms of regions, North America emerged as the weakest performer, registering only a modest 1% y-o-y growth in CC terms. Accenture improved its adjusted EBIT margin, which stood at 14.9%, representing a 20 bp y-o-y increase. However, when accounting for restructuring costs, the reported Ebit margin was 12.0%.

Accenture’s FY24E guidance is more conservative compared to pre-Covid levels (FY17-20), where the company aimed for 5-8% revenue growth. The company attributes this caution to client hesitance driven by macroeconomic uncertainties, which have resulted in a slowdown in technology spending in the short term. Clients are currently prioritising cost reduction projects, and there is limited demand for discretionary services.

Accenture reported a moderation of deal booking momentum in Q4, with new bookings of $16.6billion given continued weakness in the number of smaller-duration projects. Book-to-bill ratio stood at 1.04x in Q4FY23, same as Q3FY23. Consulting order bookings was up 1% y-o-y, while managed services order bookings fell 17% y-o-y in USD terms. ACN expects bookings in Q1FY24 to be higher than Q1FY23’s.

Accenture has observed that the GenAI opportunity is evolving quickly, but it will take a few quarters before we can fully grasp the scope and speed of GenAI adoption. The company has reported total deal wins amounting to $300 million from 300 enterprises across various industries, reflecting clients’ ongoing experimentation with this innovative technology. Implementing GenAI is a complex process that necessitates a robust digital foundation, including cloud infrastructure, well-established data resources, and up-to-date ERP systems.