Can Accenture's New Bookings Cross $50 Billion In The Next 5 Years?
Accenture’s ( ACN ) total New Bookings are derived from both Consulting and Outsourcing services. While consulting assignments are generally for twelve months or less, outsourcing contracts are typically multi-year projects involving large manpower effort, spanning multiple geographies.
Consulting Services : Consulting engagements generally involve design and development of various avenues for client business growth, ranging across technology and strategy.
Outsourcing Services : These are more traditional offerings wherein Accenture takes over certain non-core aspects of a client’s business to deliver greater value per unit cost.
In this note we take a look at the company’s ability to generate demand, and share our view of why Accenture’s total New Bookings can cross $50 billion by 2023, up from around $42.8 billion at the end of 2018. Our interactive dashboard on Accenture’s Booking Growth details our forecasts for the company’s bookings. You can modify any of our key drivers to gauge the impact changes would have on the company’s results, and see all of our Information Technology company data here .
Due to the generally less structured nature of the work in the Consulting business relative to the more structured nature of work in the Outsourcing business, Consulting engagements typically carry higher pricing than Outsourcing. Additionally, many Outsourcing projects are a result of prior Consulting projects undertaken by the company. Thus, in context of the bookings, we look at Consulting and Outsourcing bookings separately.
Over the period of 2016-18 , the book-to-bill (or the ratio of new orders to booked revenue) has declined marginally for the Outsourcing business, while edging up slightly for the Consulting business. A book-to-bill ratio of more than 100% implies that demand exceeds supply. Accenture’s total book-to-bill has grown by 50 bps over the last three years, implying that the company has been able to sustainably grow demand ahead of supply, especially in the Consulting business more recently.
How Are Bookings Trending?
Considering the relationship between Consulting and Outsourcing, it is important to understand that as soon as a particular service becomes commoditized, it becomes conducive to outsourcing. As an example, selling many financial products used to be a fairly specialized job, but today outsourced contact centers are able to achieve many desired outcomes at scale at substantially lower costs.
Another important aspect of Consulting and Outsourcing is the need to manage costs – both services typically require significant human components. As highlighted earlier, since outsourcing contracts are often longer-term in nature, cost escalations and the relatively lower pricing of outsourcing has led to some margin pressure. In order to mitigate the cost aspect, Accenture has been focusing extensively on building Accenture Applied Intelligence with over 20,000 people dedicated to the business. Accenture’s focus is in line with management’s vision to disrupt legacy work in order to stay cost-competitive.
Going forward, the trends of edge computing, migration to the cloud and broader digital transformation projects are likely to keep the company’s Consulting pipeline healthy. Further, many of these Consulting projects are also likely to keep feeding the Outsourcing pipeline at a steady pace, though pricing could see some pressure.
We expect Accenture’s Consulting bookings to grow at a CAGR of 5% over 2018-2023 to reach $30.1 billion in 2023, up from $23.6 billion in 2018. Meanwhile, we forecast Outsourcing bookings to grow at a slightly slower pace, at a CAGR of 4.4% over 2018-2023 to reach $23.8 billion, up from $19.2 billion in 2018. Overall, we forecast Accenture’s total bookings to cross $50 billion by 2022, and reach $53.8 billion in 2023, up from $42.8 billion in 2018 – which would imply a CAGR of about 4.7%.
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