Cognizant fared better than peers, but concerns linger
Nasdaq-listed Cognizant ended the three months through March 2025 with $5.12 billion in revenue, up 0.65% sequentially and 7.5% on a yearly basis. Much of this growth came from its largest markets, including healthcare companies and financial institutions.
While Cognizant bumped its revenue this quarter, peers TCS, Infosys and HCLTech reported a fourth-quarter revenue decline of -0.98%, -4.23% and -0.99%, respectively. Cognizant follows a calendar year for accounting purposes, whereas Indian IT services companies follow the April-March financial year.
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Still, this is the Teaneck, New Jersey-based company’s slowest sequential growth in four quarters.
The company’s management was less cautious than its peers in the face of macroeconomic uncertainty caused by US President Donald Trump’s tariff flip-flops.
“The macro environment changed sharply in early April and continues to evolve in real time. As our clients navigate this period of elevated uncertainty, they’re partnering with us to re-baseline the cost of technology deployment. And, we continue to see opportunities related to productivity, efficiency and cost takeout,” said S. Ravi Kumar, chief executive of Cognizant, as part of the post-earnings interaction with analysts on 30 April.
Even as the company sounded sanguine on client conversations, the same did not reflect in its guidance.
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The upper end of the company’s guidance is 6% in constant currency terms, similar to its estimates outlined at the end of 2024.
Revenue increase
To be sure, while the upper end of the full-year revenue in absolute dollar terms has increased to $21 billion from $20.8 billion, outlined in the preceding quarter, this is due to foreign currencies strengthening against the dollar, as the company’s management pointed out in the post-earnings analyst call.
Cognizant’s management expects the macroeconomic environment to improve.
“And, at the higher end of the guidance, we are assuming that the environment has to become better from where we are in quarter three and quarter four,” said Jatin Dalal, chief financial officer of Cognizant, responding to the analyst call on Wednesday.
However, there are concerns surrounding the company’s organic growth.
For one, almost half of the company’s 8.2% year-on-year constant currency growth included 4% growth from acquisitions of Belcan and Thirdera.
Going forward, the company expects inorganic growth, that is, revenue growth through its acquisitions, of 250 basis points (bps), or 2.5% for FY25. This implies that the company’s organic growth will be 3.5% in constant currency terms, lower than HCLTech’s growth estimate of 5% at best in constant currency terms but a tad higher than Infosys’s 3% estimate. TCS does not give guidance but has stated that FY26 will be better than FY25.
Even this growth might struggle as Belcan, which Cognizant acquired for $1.3 billion in June 2024, gets more than three-fourths of its business from commercial aerospace, defence and space, whereas 40% comes from US federal contracts. As the US department of government efficiency (DOGE), led by Elon Musk, is clamping down on government spending, sectors that contribute to Belcan’s growth may suffer, possibly hindering the company’s inorganic growth.
However, Dalal was optimistic about the larger macroeconomic environment.
CFO Dalal’s view
“We did not see a significant impact on our business from the recent macroeconomic uncertainty during the first quarter. And, we have not had any material customer cancellations during the quarter and through today. In April, we did begin to see some slowdown in client decision-making and discretionary spending. This has been more pronounced with select clients in certain segments, including health sciences and products and resources. We believe the impact has been isolated so far in the second quarter and we are closely monitoring development for implications across our broader portfolio,” said Dalal.
Cognizant’s commentary contrasts with at least two of its peers, who were more cautious in their outlook for the year. While TCS does not give a revenue outlook, its management emphasized macroeconomic uncertainty that led to project delays and deferrals in client decision-making.
The third-largest IT services company HCL Technologies Ltd was not very sanguine either.
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“We believe discretionary spending will continue to be subdued in this environment. Geopolitical factors like tariffs and de-globalization are expected to impact IT services,” said C. Vijayakumar, CEO of HCLTech, as part of the post-earnings press conference on 22 April.
However, Bengaluru-based peer Infosys Ltd echoed S Ravi Kumar’s sentiment, adding that “things could change quickly”.
The IT services company expects revenue between $5.14 billion and $5.21 billion for the three months ended June 2025, which translates to sequential growth of 1.75%.
Another bright spot on its report card was the net profit, which jumped 21% to $663 million. With this, the company outperformed analysts on both fronts. ABloomberg poll of 24 analysts suggested that Cognizant was expected to report $5.07 billion in revenue, whereas a similar poll of 19 analysts suggested the company’s net profit at $593 million.
Strong performance
Even its profitability was one to cheer. Cognizant reported operating margins of 16.7% for the quarter, up 190 basis points sequentially.
One basis point is a hundredth of a percentage point.
This is the company’s strongest margin performance since October 2023, when margins widened 220 basis points. To be sure, the sale of an office complex in India contributed to the increase in margins apart from cost-cutting efforts that the company is factoring in, a point that Ravi Kumar had brought up.
At least one analyst gave the company’s performance a thumbs up.
“While our estimates are generally moving lower for our IT services companies due to a weaker demand environment, CTSH (Cognizant) was able to maintain previous FY25 guidance on the back of strong reported results in the March quarter,” said Keith Bachman, analyst at BMO Capital Markets.
“We believe business mix towards Financial Services, which has improved, and Healthcare, along with less CMT (communications, media and technology)and retail exposure, helps CTSH relative positioning in the tariff environment,” said Bachman.
Cognizant saw its revenue increase from two of its biggest markets: financial institutions and healthcare. These two industries make up three-fifths of the company’s overall revenue.
Business in North America, the company’s biggest market, also boosts revenue. Cognizant gets three-fourths of its business from the market, contributing about 97% of the company’s incremental revenue of $33 million for the quarter.
Cognizant cut headcount for the second consecutive quarter. The company ended March 2025 with 336,300 employees, 500 lower than the preceding quarter and 8,100 lower in the 12 months leading to March 2025. With this, Cognizant became the second largest Indian IT services company to cut headcount in April-March 2025.
HCLTech was the only company of the top four to cut headcount in the whole year by 4,061 employees.