Cognizant Technology Solutions (CTSH - Free Report) recently announced that it has entered into an agreement to buy Chicago-based cloud firm 10th Magnitude that focuses on Microsoft’s (MSFT - Free Report) cloud-computing arm Azure.
10th Magnitude offers advisory and managed services, including data-center transformation, application modernization, and data intelligence with AI-driven analytics and insights. Similar to Cognizant, 10th Magnitude is a Microsoft Gold Partner.
Markedly, 10th Magnitude will be integrated into Cognizant’s Microsoft Business Group upon close of the transaction, which is expected in the third quarter of 2020.
Cognizant has been focused on strengthening its footprint in Azure-related services. Notably, the company completed New Signature deal on Aug 18. The transaction expands Cognizant’s hyperscale cloud-advisory services.
Undoubtedly, the latest 10th Magnitude deal will further expand Cognizant’s Microsoft Azure expertise.
Acquisitions to Aid Cognizant’s Growth
Acquisitions have played an important part in charting out Cognizant’s growth trajectory by strengthening its digital capabilities, client base and market footprint.
In 2019, Cognizant completed five acquisitions, namely Mustache, Meritsoft, Samlink, Zenith and Contino, which expanded its footprint into SaaS, financial services including banking capabilities, biopharmaceutical and medical-device space, enterprise DevOps, and cloud transformation.
This year, the company has been particularly focusing on augmenting its cloud practices. Apart from New Signature, Cognizant bought privately held global consultancy company Collaborative Solutions, which specializes in Workday (WDAY - Free Report) enterprise cloud applications for financial and human resources.
Further, this Zacks Rank #3 (Hold) company bought Code Zero, a provider of consulting and implementation services that strengthens its cloud-solutions portfolio and Salesforce (CRM - Free Report) domain expertise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Additionally, Cognizant acquired Lev, a Salesforce Platinum Partner, specialized in custom cloud solutions. It also bought EI-Technologies, a digital technology consulting firm and leading Salesforce specialist.
Although the acquisitions are expected to have limited revenue contribution, they surely expand Cognizant’s digital endeavors and are expected to boost clientele in the long haul. However, acquisitions like Collaborative and New Signature are likely to keep margins under pressure in the near term.
2020 Revenues Expected to Decline Y/Y
Markedly, for 2020, Cognizant expects revenues to decline between 0.5% and 2% year over year at constant currency to $16.4-16.7 billion range. Management anticipates its top line to suffer from the exit of certain content-services business.
Moreover, Cognizant expects adjusted operating margin to be around 15% in 2020 compared with 16.6% reported in 2019.
The Zacks Consensus Estimate for 2020 revenues is pegged at $16.56 billion, indicating a decline of 1.3% year over year. Moreover, the consensus mark for earnings stands at $3.56 per share, suggesting a decline of 10.8% year over year.
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