IT consulting giant Accenture (ACN, Financial) is under selling pressure today after reports surfaced that the company would delay staff promotions by six months due to an extended slump in the consultancy industry. This news has affected several of ACN's peers, causing declines in DAVA (-5%), EPAM (-2%), GLOB (-2%), and IBM (-1%).
Since reporting Q3 results in late June, ACN has seen a remarkable comeback, soaring over 20%. The company's focus on artificial intelligence (AI) has kept shares afloat despite a lackluster Q3 performance. Management has been heavily investing in its AI division, with around 55,000 skilled data and AI practitioners aiming for 80,000 by the end of FY26. This enthusiasm was further fueled by a nearly sevenfold increase in Gen AI bookings year-to-date compared to all of FY23.
However, today's news has created uneasiness among investors, leading to profit-taking.
- Today's report should not be too surprising. Despite shares of ACN gapping higher, its Q3 report in late June showed some weaknesses. The company missed earnings expectations due to a 0.6% drop in revenue year-over-year. Management also lowered its FY24 EPS guidance while narrowing its revenue growth forecast to 1.5-2.5% from 1.0-3.0%.
- Client spending has not developed as ACN anticipated at the start of FY24. Customers are focusing on large-scale transformations that convert to revenue more slowly. Concurrently, they are limiting discretionary spending, especially on smaller projects, and delaying decisions, contributing to a sluggish pace of spending. These structural headwinds were not offset by the explosive AI-related revenue, as $2.0 billion in bookings is minimal compared to ACN's $21.1 billion in total bookings last quarter.
- ACN remains confident it is well-positioned to capture an eventual uptick in discretionary spending, although the timeline is uncertain. EPAM noted last month that there are discussions about significant modernization among customers, but it has not materialized into tangible projects. Nonetheless, ACN continues to cite AI as the catalyst that will drive overall spending.
Today's reaction highlights the volatility of the macroeconomic environment. While Gen AI has driven significant demand, it has not bolstered the rest of ACN's business. The road ahead remains uncertain, and perhaps management will provide FY25 commentary when it reports Q4 earnings on September 26. Additionally, keep an eye on DAVA as it reports Q4 results on September 19 before the market opens.
