Accenture faces continued demand pressure, lowers guidance

Accenture lowers FY24 guidance: Accenture's second-quarter performance reveals ongoing challenges in demand, leading to a downward revision in its revenue guidance for FY24, analysts noted. 

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While deal wins remain strong, the company's commentary and guidance adjustments suggest persistent pressure on discretionary spending, according to the reports from brokerages Motilal Oswal and JM Financial.

Accenture reported second-quarter revenues of $15.8 billion, showing flat year-on-year (YoY) growth in constant currency (CC) terms and a 2.6 per cent quarter-on-quarter (QoQ) decline. 

The company's third-quarter revenue growth guidance of (1 per cent)-3 per cent year-on-year CC and revised financial year 2024 (FY24) guidance of 1.0 per cent-3.0 per cent missed Bloomberg consensus expectations, signalling heightened challenges ahead.

Management commentary indicates a continued weakness in discretionary spending, partially offset by investments in cost efficiency-related initiatives. Indian IT peers are likely to face similar headwinds, dragging down their operational performance for FY24 and growth estimates for FY25.

Despite the demand pressure, Accenture's outsourcing-driven deal bookings remained robust, reaching the second-highest bookings of $21.6 billion in the second quarter, although down 2 per cent year-on-year, analysts highlighted.

Notably, the company's managed services revenue grew by 3 per cent year-on-year in CC terms, the slowest in the last four years, while consulting services continued to decline, down 3 per cent year-on-year in CC terms.

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The guidance cut and ongoing challenges in demand underscore the prevailing macro headwinds impacting Accenture's growth trajectory. Weakness in key verticals such as Financial Services and Communications, Media, and Technology (CMT) further add to the company's challenges.

Moreover, the increase in attrition and the shift in client priorities towards large-scale transformations highlight the evolving dynamics in the IT services landscape.

Analysts anticipate a recalibration of growth expectations in the sector, which could lead to valuation contractions as well. 

The IT major’s struggles with demand pressures and guidance adjustments signal a cautious outlook for the broader IT services industry, with potential implications for both global and Indian players.