1 month ago
US-based information technology (IT) services company Cognizant Technology Solutions reported strong Q4 results, beating Street estimates on the revenue front. However, its calendar year 2025 (CY25) guidance fell short of expectations.
The Nasdaq-listed IT services company forecasted constant currency revenue growth of 3.5% to 6% for 2025, which is lower than analysts' estimates.
Cognizant expects its 2025 revenue to range between $20.3 billion and $20.8 billion, below the estimated $20.89 billion.
The CY25 growth guidance of 3.5% to 6% is significantly higher than the 1.4% to 1.9% growth in CY24.
The company projected 2025 adjusted earnings between $4.90 and $5.06 per share, with a midpoint of $4.98 per share, slightly below estimates of $4.99 per share.
This guidance assumes significance as Cognizant indicated an improved demand environment, saying that it is now transitioning from stabilisation to growth in the quarter ended December 31, 2024.
"We are getting some discretionary spend back, and therefore the volume or the texture of growth will be slightly different for 2025. You will see both short-term work as well as volumes added by large contracts and deals," Chief Financial Officer Jatin Dalal told analysts after the Q4 results. Cognizant follows a calendar-year reporting structure.
Cognizant's Q4 revenue came in at the higher end of its guidance range, increasing 6.7% year-over-year (YoY) to $5.1 billion, exceeding Wall Street estimates of $5.06 billion.
The IT company's operating margin fell by 40 basis points (bps) YoY to 14.8%, but its full-year operating margin improved by 80 bps YoY to 14.7%.
"Margins declined by 40 basis points, primarily due to the impact of Belcan and increased compensation costs. This was partially offset by savings from next-gen initiatives, high utilization, and a favorable currency exchange rate," Dalal said.
Meanwhile, the first quarter revenue guidance is projected at 6.5% to 8% in constant currency (CC) terms, higher than the 5.1% to 7.1% guidance given for Q4.
The company ended 2024 with bookings of $27.1 billion on a trailing 12-month basis, up 3% YoY. Fourth-quarter bookings increased 11% YoY.
Cognizant also announced a 3% increase in its quarterly cash dividend, raising it to $0.31 per share.
Analysts believe the sector has bottomed out and is on a recovery path, though the pace of recovery remains under watch.
Following the earnings announcement, Cognizant's stock declined 1.9% in after-hours trading.
