What kind of company is Accenture, the McKinsey of technology industry?

Accenture

The world’s largest technology consulting company

Accenture (ticker: ACN) is a very good company, and I am still proud to have been a member of Accenture. But I found that even the employees of very large companies or large foreign companies in Taiwan, and even senior executives, do not know this company exists. This surprised me. I learned a lot in this company; for example, how to analyze a company, examine its competitiveness, formulate its competitive strategy, and reform its business processes. You guessed it, this is very similar to the work of the analysts from Wall Street. The threshold for hiring employees is very high. Almost all the colleagues in it are elites who graduated from the prestigious Ivy League schools in the United States. The employees are all very good and extremely smart. At the end of 2021, Accenture has 624,000 employees worldwide.

So far no direct competitor

It is the world’s largest technology consulting firm, and it’s often called the McKinsey of technology industry. The market’s valuation has always been very high. Compared with the valuations of large software vendors such as Microsoft (ticker: MSFT), Facebook (ticker: META), or Alphabet (ticker: GOOGL and GOOG), there has been nothing less. Accenture’s business spans corporate restructuring, business process planning, core business outsourcing, and the introduction of the latest technology; however, its core value is mainly focused on process implementation. Compared with the two major consulting companies that most people know, McKinsey or Boston Consulting Group (BCG), they are more focused on strategic planning. These two are usually not responsible for implementation or actual process rollout. For example, it is Accenture’s job is to find a consultant team to review, change, and re-design the company’s processes one by one.

A good investment target

It is a good company and a good investment target, but few people in Taiwan discuss it. In my impression, the financial media only mentioned Accenture in a report about three or four years ago that Accenture was one of the top performed stocks in the U.S. stock market at that time. But it is a well-known company among the large European and American companies, as well as the management class of all large listed companies, because it may be the last resort to save company. The latest piece of news is that Accenture has contracted the US government’s digital currency project.

Obtain the latest technology through acquisitions

Accenture obtains the latest technology and employees with new technology through small mergers and acquisitions, because this is the main purpose of large companies hiring Accenture for projects. Basically, Accenture only works on projects for the world’s top 500 companies. Because of its high asking price, small and medium-sized enterprises simply cannot afford it. Taiwan’s only TSMC has been its customer for a long time. However, Accenture’s internal competition is very fierce. As long as there is no project in hand, employees will soon be dispatched. Therefore, employees who are acquired by mergers and acquisitions cannot stay for a long time. This is also because its employees will not rapidly expand, and of course it will not substantial increase in costs.

Core competitiveness: unique methodology

It is not a problem for the incorporated employees to adapt to Accenture’s culture after acquired, because Accenture’s own expertise is to assist companies in corporate reorganization and process reorganization. Accenture has a very strict methodology when carrying out projects. There are ways to do anything big and small (including how employees wear clothes). This is its core value. All employees must abide by it.

It’s dividends is not taxable

Accenture is registered in Ireland and is not a U.S. company, so dividends will not be withheld by the U.S. government at 30%. Accenture went public on the U.S. stock market in July 2001, began to pay dividends as soon as it went public, its yield rate is considered a relatively high group in the technology industry.

Market valuation

It is a very stable large-scale technology growth stock. The following table is a comparison among four big companies, Accenture, Microsoft, Alphabet and Facebook:

CompanyAccentureMicrosoftAlphabetFacebook
Stock price (5/19/2021)280.97280.97 2,271.5 313.59
Market Cap (5/19/2021) US$ billion1,78.598 1,831 1,536 889.172
P/E ratio 33.25 33.13 30.27 26.87
Dividend yield 1.24% 0.92% N/AN/A

Annualized return on stock prices in past 2 decades is 16.06%!

But because it is not a US company and the company is very low-key, it is usually not a very hot stock. However, the return on investment in it is very high, the annualized rate of return (aka IRR) since the listing is as high as 16.06% (until 5/11/2021). The following figure is the stock price trend chart of Accenture since its listing, and the stock price trend has been stable and upward for a long time (July 2001 to May 2021).

2021 performance

The type of business, and revenue ratio:

  • Consulting 54.06%
  • Outsourcing 45.94%

Client industry, and revenue ratio:

  • Communications, Media & Technology 20.4%
  • Financial Services 19.6%
  • Health & Public Service 18.8%
  • Products 27.7%
  • Resources 13.7%

98 of the top 100 customers in fiscal 2021 have been with them for more than 10 years。

Stock performance in past year

3/2/2022 dataNumber
Stock price318.33
Market capitalization209.55 billion
P/E33.11 (same as Microsoft)
Dividend yield1.22%
Stock performance in past year25.24%

Past 5 years business growth rate

Revenue Metrics20182019202020212022 (est)
Revenue (billions)$41.0$43.2$44.3$50.5
Year-over-year growth13.57%5.36%2.54%14.00%19%-22%
Accenture
credit: wikimedia

Strong cash flow

In addition to sales growth, Accenture has steadily improved its profits.

Profitability Metrics20172018201920202021Growth
Net income (billions)$3.44$4.06$4.78$5.10$5.9014.14%
Free cash flow (billions)$4.45$5.40$6.02$7.61$8.4017.21%

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