Accenture lowers revenue forecast again as tough macro economy weighs; Investors cheer Gen AI sales

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IT services provider Accenture lowered its revenue forecast for fiscal year 2024 due to economic uncertainty leading clients to reduce spending on consulting services.

Accenture's revised outlook on June 20 anticipates full-year revenue growth to be within the range of 1.5 percent to 2.5 percent, compared to its earlier projection of 1 percent to 3 percent. In the first quarter, the world’s largest IT firm had projected the metric in the range of 2 percent to 5 percent.

Accenture follows a September-August financial year.

Despite the revenue guidance being trimmed at the upper end, the company's shares were up over 6.5 percent on the New York Stock Exchange in premarket trading.

Accenture's performance is widely regarded as a benchmark for the Indian IT industry, providing a glimpse into the expected outcomes for Indian IT companies. The first quarter of fiscal year 2024-25 earnings season commences on July 11, with bellwether Tata Consultancy Services (TCS).

Given that a substantial portion of Accenture's workforce is based in India, its results often serve as an indicator of the broader trends and potential outcomes within the Indian IT sector.

The Dublin-headquartered IT giant saw its Q3 revenue at $16.5 billion, a decrease of 1 percent from the year-ago period.

Accenture had new bookings of $21.1 billion, an increase of 22 percent. The operating margin was flat year-on-year at 16.3 percent.

The company's new Generative Artificial Intelligence (Gen AI) bookings were worth over $900 million in the quarter. This takes the total generative AI bookings to $2 billion for the fiscal year to date, which cheered investors.

Accenture and TCS are the only two big IT companies that have so far declared revenue from this nascent technology.

Last month, rival Cognizant faltered with topline and bottomline numbers on account of tepid discretionary spending by clients.

"We've had, overall, in our entire business, continued pricing pressure," Chief Executive Officer Julie Sweet said while speaking to analysts after declaring the results.

Delving deeper

Geography-wise, revenue increased by 1 percent year-on-year to $7.83 billion in North America year-on-year, while revenue from the Europe, Middle East, and Africa region decreased by 2 percent to $5.78 billion. Revenue from other markets also decreased by 4 percent to $2.86 billion.

On the verticals front, the largest one - the products business – was flat at $4.98 billion year-on-year. Next in line, the Health & Public Service vertical increased by 8 percent to $3.52 billion year-on-year. However, as seen in other IT companies, the financial services vertical did not perform well and decreased by 8 percent to $2.89 billion.

Accenture's consulting revenues for the quarter decreased by 3 percent to $8.46 billion, while managed services increased by 2 percent to $8.01 billion.

The management also said it expects the consulting business to return to growth in Q4. The consulting business has remained sluggish since Q2 of last year, management further said.

On managed services, the company said its early embracing of using Gen AI has been the real differentiator in the managed services vertical.

The AI picture

The company’s headcount increased by 7,882 sequentially in the quarter to 750,200 employees. The attrition rate increased by 1 percentage point to 14 percent for the quarter.

Sweet said the company's workforce includes approximately 55,000 skilled data and AI practitioners. "(This is) against our goal of doubling our data and AI workforce from 40,000 to 80,000 by the end of FY26."

She added that nearly all clients are finding it difficult to scale Gen AI projects because AI technology is a small part of what is needed to reinvent using technology, data, and AI. Sweet said organisations must change processes and ways of working, reskill and upskill employees, and build new capabilities around responsible AI.

"In short, Gen AI is acting as a catalyst for companies to more aggressively go after costs, build digital core, and truly change the way they work which creates significant opportunity for us," she added.