News & Analysis

Cognizant Posts Higher Q2 Net, But Lowers Yearly Guidance

In spite of the recession headwinds blowing down from North America and Europe, the company intends to focus on its financial services vertical

Buoyed by a robust 12.7% rise in second quarter (Apri-June) net profits, Cognizant Technology Solutions plans to retain its focus on the financial services vertical that saw a 5.1% growth over the period. This, despite fears of recessionary headwinds already blowing in from North America and Europe. 

The company announced its second quarter results last evening where profits for the June quarter stood at $577 million, making it the fifth successive quarter of revenue growth for the New Jersey-based IT services giant. It also represents the highest quarterly revenue till date for the company, which competes with the likes of TCS, Wipro and Infosys among others.  

However, Cognizant also played it safe by lowering its full year revenue growth guidance to between 8.5 and 9.5% at constant currency levels, which would translate into a number between $19.7 billion to $19.9 billion. The company had earlier predicted annual revenues to grow between nine and eleven percent. 


The focus stays on Financial Services

Looking at specific verticals, the financial services revenue grew by 5.1%, getting a boost from regional banking clients in the United States and UK as well as Cognizant’s focus on the insurance sector. The company revealed that sale of the Samlink subsidiary (in February 2022) adversely impacted the revenue growth by about 190 basis points. 

In fact, the financial services sector provided the slowest growth among verticals for the company during the second quarter. It grew at 5.1% on constant currency but did make up for close to a third of the company’s total revenues of $4.9 billion. Which explains why Rajesh Nambiar, India CMD of Cognizant is gung-ho about this vertical. 

He told Economic Times that the company would look to maintain its growth rates in this vertical despite the macroeconomic headwinds in the United States. Nambiar said the company is pivoting towards bagging orders with higher margins now. This optimism is intriguing to us,  given that for over five quarters now, financial services revenue has flattened at round $1.5 billion even as other verticals have shown an uptick.  

In the second quarter, healthcare revenues grew by 7.6% with a strong push from digital services among pharmaceutical companies as well as a sustained demand spell from integrated software solutions among Cognizant’s healthcare clients. 

The products and resources revenue grew 11.6% annually in constant currency, driven partly by strength among automotive, logistics, retail and consumer goods clients. Segment growth includes the benefit of acquisitions closed in Q2 2021. Communications, media and technology revenue grew 19.5% from the year-ago period in constant currency driven by strength among digital native companies.

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