The Factors That Will Drive Accenture’s Consulting Revenue Growth

by Trefis Team
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Accenture‘s (NYSE:ACN) market leadership position for many of its services in the consulting domain has driven revenue growth for the company, with its revenues growing by a CAGR of nearly 6% in the last three years. One of the primary reasons for this has been an uptick in the consulting order book on the back of acquisitions over the past few years. Furthermore, the company continues to add capabilities for IoT, Analytics and cloud computing consulting. In this note, we explore Accenture’s consulting business and what will drive its growth in the coming years.

Take a look at our interactive breakdown of Accenture’s consulting business here. We have a $125 price estimate for Accenture, which is around 15% below its current market price.

 See our full analysis for Accenture

Consulting Business To Drive Revenue Growth For Accenture

The consulting business accounts for 55% of Accenture’s total value, according to our estimates, and contributed 54% of its total revenues in fiscal 2017. Accenture’s consulting business offers services across multiple domains, including finance, operations, strategy, risk management and talent & organization performance.  These services are offered across multiple verticals and industries such as banking, chemicals, energy, health, insurance, life sciences and retail.

Over the past four years, the company’s consulting revenues have grown at a CAGR of 5.1% from $15.4 billion to $18.75 billion in fiscal 2017 (fiscal year ends in August). An important driver of this growth has been the growth in new contract signings, which have grown at a CAGR of 5% in recent years to $19.8 billion in fiscal 2017. As a result, the book-to-bill ratio, the key metric that shows the growth in new contracts, has increased from 1.06x to 1.08x in the period.

The primary reason for the growth in new signings has been strong double-digit growth in strategy and consulting services for digital-related services. Accenture has been able to strategically position itself in these domains through acquisitions such as IBB over the past few years. These acquisitions not only diversified Accenture’s geographical footprint, but also augmented its portfolio of services in the emerging Cloud, Internet-of-Things, mobile computing and cyber security domains. Furthermore, opportunities in social media, mobile, analytics and cloud (SMAC) are abundant as companies look to integrate their existing services with SMAC. Accenture, through its consulting practice, has a significant base of knowledge of clients’ businesses and processes, which should give it an advantage when it comes to new signings. We forecast that, due to these initiatives, new signings for Accenture’s consulting business will increase to over $27 billion in 2024. As a result, the corresponding consulting revenues should grow to over $25 billion.

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