Cognizant’s 2024 rebound: A real recovery or an acquisition boost?

Bengaluru: Cognizant Technology Solution Corp. bounced back from 2023’s lacklustre performance reporting a revenue growth for last year, mainly on the back of two large acquisitions. But factor out the acquisitions and the revenue concerns linger.

The Chennai-born, New Jersey-headquartered Cognizant acquired Belcan in September for $1.3 billion to strengthen its position in the engineering research and development (ER&D) sector. Earlier, in January last year, it acquired Thirdera for $430 million to build an artificial intelligence offering.

The Nasdaq-listed company reported $19.74 billion in revenue for 2024, up 1.98% on a yearly basis. In 2023, Cognizant’s revenue had declined 0.4% to about $19.35 billion.

But Cognizant, which follows a January-December financial calendar, noted that its recently completed acquisitions made up 200 basis points, or 2%, of its 2024 revenue growth, indicating slower growth without counting revenue from the recently acquired companies.

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On a quarterly basis, the company fared worse: its latest December-quarter revenue jumped only 0.75% sequentially to $5.08 billion. Still, that’s a tad higher than that of India’s second-largest software service provider, Infosys Ltd, which reported a revenue of $4.94 billion for the October-December period.

“I’d say it’s all-round comprehensive organic growth we are looking at,” said Ravi Kumar S., chief executive of Cognizant, in a post-earnings interaction with analysts. “And I’m also excited about the fact that while Americas is actually a principal market and it is leading the way, the international markets are starting to contribute to this process.”

Another bright spot in the company’s 2024 report card was its net profit, which rose 5.36% on a yearly basis to $2.24 billion. Cognizant ended 2024 with operating margins of 14.7%—an increase of 80 basis points from the year before—on account of decreasing staff cost as the company cut its headcount by about 10,900 last year.

The IT services company, which has about 70% of its workforce in India, ended 2024 with about 336,800 people. 

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Optimistic guidance

For the ongoing January-March quarter, Cognizant expects to earn $5-5.1 billion in revenue, and $20.3-20.8 billion for the full year. On an organic basis, the company expects a 1-3.5% revenue growth in constant currency terms for 2025 despite clients increasing their non-essential spending.

A BMO Capital Markets analyst cheered Cognizant’s ability to improve profitability, although he flagged the organic guidance.

“Cognizant delivered a reasonable quarter all around, particularly in margins, though we believe the organic revenue growth guide fell a bit short of expectations,” said Keith Bachman, analyst at BMO Capital Markets. 

“We believe financial services spend is slowly improving notably for the Indian providers, as well as pockets of healthcare, but many areas of the market remain pressured including aerospace and automotive,” he added. “Hence, we think there is potential for improved organic growth for CTSH (Cognizant) in FY25 vs. FY24 though still low single-digit growth.”

Much of Cognizant’s growth in 2024 was from healthcare clients, who brought the American IT outsourcer about a third, or $1.54 billion, of its quarterly revenue and $5.93 billion of its yearly revenue.

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