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The just-concluded robust quarterly results of global SaaS companies, such as Salesforce, ServiceNow, and Workday, hold cheer for Indian IT players delivering high-end digital services, according to top broker ICICI Securities.
Most SaaS companies have reported June/July23 quarter revenue growth higher than their guidance, and some have also upgraded full-year CY23 guidance, indicating improvement in demand despite elongated deal cycles.
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Demand for SaaS companies has either stabilised or incrementally improved. Most SaaS companies, such as Servicenow, Workday, Snowflake, Atlassian, Datadog, and Hubspot, have reported June/July 23 quarter revenue growth higher than their guidance, indicating some improvement in demand despite additional deal scrutiny by clients.
A few companies, such as Servicenow, Salesforce and Globant, have also increased their guidance for CY23. ServiceNow further raised mid-point of its CY23 revenue guidance. Salesforce also raised its guidance by 100bps to 11 per cent year-on-year growth in FY24 (Jan-end).
With this, ICICI Securities notes that Persistent has a significant number of employees trained in Salesforce — 12 per cent of its workforce, the highest in our coverage universe. This implies that Persistent has the highest revenue exposure (15-20 per cent) from Salesforce partnership (sell-to, sell-with and sell-through) within our coverage universe. “We re-iterate our positive stance on Persistent given that Salesforce has increased the mid-point of its full year guidance, which augurs well for Persistent,” analysts noted.
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Among digital companies, only Globant has increased its guidance, while rest of the companies (EPAM, Thoughtworks, Endava, Griddynamics and Perficient) expect weak revenue growth in CY23/FY24. “This indicates weakness in broader discretionary tech spend. Therefore, we maintain our ‘hold’ rating for Happiestminds, which has 52 per cent exposure to the discretionary spend category of product engineering services,” the brokerage said.
Albeit, Digital engineering companies continue to face a slowdown in discretionary tech spends. Companies like EPAM, Thoughtworks and Perficient have massively cut their full year CY23 growth guidance in last three months. Griddynamics reported revenue decline of 3.5 per cent quarter-on-quarterin the June quarter and expects flattish growth in Oct quarter at -0.4 per cent QoQ.
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