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Accenture Should Expand SaaS-Enabled BPO

Posted on Tuesday, Jan 4th 2011

Earlier last quarter, Gartner announced a dismal projection for worldwide enterprise IT spending. According to the researcher, IT spending will grow 3.2% over the year in 2010 compared with the 3.9% growth projected earlier. In 2011, IT spending is expected to reach $2.5 trillion, recording a mere 2.4% growth compared with 2009. According to the research firm, while key verticals such as manufacturing and financial services may have a couple more years before their IT budgets recover to pre-2008 levels, there will be other areas which will grow faster. The research firm expects IT growth to be “driven by the consumer” along with the four key trends of cloud computing, social computing, context-aware computing, and pattern-based strategy to drive IT business values. But despite the conservative estimates, IT outsourcing giant Accenture declared strong results.

Accenture’s Financials
Accenture’s (NASDAQ:ACN) Q1 revenues grew 12% over the year to $6.05 billion driven by 18% growth in their financial services group. EPS for the quarter of $0.81 grew 20% over the year. The Street was expecting revenues of $5.8 billion and EPS of $0.75.

During the quarter, the company saw growth in IT spending worldwide, and they recorded an impressive $6.3 billion in bookings. Consulting bookings of $3.72 billion were the highest in the previous ten years, and reflect the revival of the economy.

They repurchased or redeemed approximately 14.6 million shares worth $620 million at an average price of $42.37 per share.

For fiscal 2011, the company is expecting revenues to grow 8%–11% over the year from previous year’s $21.6 billion with EPS of $3.08–$3.16. They expect Q2 revenues of $5.6 billion–$5.8 billion compared with the market’s forecast of $5.6 billion.

Accenture’s Operating Metrics
Accenture ended the quarter with 211,000 employees. In the coming year, they plan to hire at least 64,000 people around the world. In the quarter, utilization grew by nearly half a point to 87%. Attrition, which excludes involuntary terminations was 15%, down from 17% in the previous quarter. To control attrition, Accenture has joined other IT players in increasing an employee’s notice term to three months from the present norm of a month.

Accenture’s Strategy
Accenture also recognizes the need to be present in more countries, and has listed it as one of the critical components of their growth strategy. As part of their global expansion, they recently opened their first dedicated innovation center in Ireland. The 100-employee research and development facility will focus on developing predictive analytics solutions for their clients worldwide.

They also entered into a strategic tie up with NHN Corporation, an important Internet content service provider in South Korea, to collaborate in the development of applications for smartphones. The two will work together to develop and improve apps for Android and Apple OS-based phones.

Accenture has also announced several acquisitions in the quarter to enhance their service portfolio. They acquired CAS Computer Anwendungs-und Systemberatung AG (CAS), a provider of customer relationship management (CRM) and mobility software focused on retail execution and trade promotions for the consumer products industry based in Kaiserslautern, Germany. Accenture hopes the acquisition of the 234 consultants will help enhance Accenture offer improved in-store strategies through more effective retail execution to consumer products companies.

To expand within the business process outsourcing (BPO) segment, they acquired Ariba’s BPO service assets, which include 160 employees, for $51 million. Ariba is a leader in spend management and through the acquisition, Accenture will extend their existing sourcing and procurement services by adding deeper category expertise, highly scalable global sourcing service delivery operations and proprietary sourcing databases, benchmarks, and technologies.

I foresee more SaaS-enabled BPO offerings from Accenture in the upcoming years in various categories including talent management (SuccessFactors, Taleo), taxes (Sabrix), expense management (Concur), and so on.

The stock is trading at $48.59 with a market capitalization of $31 billion. Earlier last month, it touched a 52-week high of $51.43.

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