Accenture Plc (NYSE:ACN) recently reported disappointing results thanks to the drop in its consultancy revenue, which offset a healthy increase in its outsourcing business. Its clients are demanding longer horizon consultancy work, so revenue realization is slow in the company’s consultancy business. On the other hand, the company’s outsourcing revenue increased due to the higher demand of outsourcing services. The company is also benefiting from the investment it had made in cloud computing, analytics and mobile platforms. In addition to these factors, the U.S. immigration bill, if passed, will give a competitive advantage to Accenture Plc (NYSE:ACN) over its Indian IT peers. Below, I will discuss these points in detail.
The change in regulations in BFSI will boost revenue
The change in the regulatory needs for banks and capital markets is expected to increase the technology spending by banks and other companies. As a result, there has been an increase in the demand of outsourcing services. Outsourcing services have high margins when compared to onshore services. This will help the company improve upon its revenue and margin because of the higher demand.
Cloud platform, analytics and mobile technology will help Accenture increase its revenue
According to the IDC, the market size of cloud computing will be around $98 billion by 2016. Accenture has invested around $400 million in the cloud platform. According to the company’s management of its cloud computing division, this investment has started giving returns. The revenue from the cloud computing platform was about $1 billion in fiscal year 2012. Going forward, we will see a rise in the revenue from this platform.
Analytics and mobile technology is another platform that is expected to surge in the coming year. With increased spending in this segment across the globe, we expect that Accenture Plc (NYSE:ACN)’s revenue will grow in the coming year.
U.S. immigration bill will help Accenture over its Indian peers
The U.S. immigration bill will help the company, which has its major workforce in the US only. Accenture will benefit from this bill as it has around 1370 H1-B workers among its 30,000 employees in the U.S. If the bill passes, it can increase the number of its H1-B visa holders without having to dole out extra to pay for H1-B visas. This will give Accenture Plc (NYSE:ACN) a competitive edge over the Indian IT players.
Increasing demand for large transformational projects will have an impact on short term revenue
There has been a change in the nature of the consultancy projects. The clients are now demanding larger transformational projects with longer durations. This has impacted the revenue stream in the short run. The company is expected to have a positive impact from this going forward. The short term consulting projects have remained flat and are expected to remain so in the coming quarters, so revenue from this will be stable.
Peer analysis
Infosys Ltd ADR (NYSE:INFY) has undergone a leadership change recently. It’s most charismatic and influential leader Narayan Murthy is back at Infosys as executive chairman. This has been necessitated due to Infosys Ltd ADR (NYSE:INFY)’s falling fortunes in the last two years. Narayan Murthy has come at a time when the company has fallen behind its peers. The Company will look up to Narayan Murthy’s experience and leadership skills to sail the company out of this turbulent phase.
