Accenture makes money by providing outsourcing and consulting services primarily to Fortune 500 companies. We estimate that Outsourcing constitutes 38% of the $46.63 per share Trefis price estimate for Accenture. A significant part of the company’s outsourcing business comes from companies contracting with Accenture for the development of software applications, called Application Outsourcing (AO).
Companies are increasingly using Application Outsourcing providers like Accenture, instead of expanding in-house IT resources to help control IT costs. Accenture’s AO headcount, which represents the number of Accenture employees involved in application outsourcing, increased from ~32,000 in 2005 to ~56,000 by 2008. Headcount is an important measure of business health for a services provider like Accenture which oftentimes bills clients by the hour for its services.
We forecast AO headcount to increase to nearly 80,000 by the end of the Trefis forecast period due to on-going demand for software outsourcing. We believe that Accenture’s AO business will not be significantly impacted by the broader macroeconomic weakness since AO projects are often smaller and less complex than business process or technology infrastructure outsourcing.
Furthermore, the current environment may spur more companies to consider using AO providers rather than increasing fixed IT costs. This could accelerate the growth of the AO market and help Accenture to demonstrate value to new clients within a short time frame. Within Accenture’s content on our platform, you can see how further growth in Application Outsourcing Services Professional Headcount would impact Accenture’s stock price.
