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Accenture Buys Karmarama, Steps Up Digital Marketing Efforts

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In an effort to expand its agency business, global consulting giant, Accenture Plc (ACN - Free Report) yesterday announced the acquisition of privately held U.K.–based creative advertisement agency, Karmarama. However, the financial details of the transaction were kept under wraps.

Founded in 2000, Karmarama helps its clients in transforming their businesses through its creative advertising campaigns, data-driven content and mobile platforms. With its team of 250 employees, which are creatives, digital strategists and data practitioners, the company is currently the largest independent agency in terms of headcount and the third largest in terms of billings in the U.K.

Karmarama will join the Accenture Interactive platform, a part of the company's digital marketing-services arm, Accenture Digital. Accenture Interactive was formed in 2009 to deliver superior consulting, technology and analytics services to chief marketing officers (CMOs).

Initially, the company will focus on the U.K. market only, but over time Karmarama's management team – Sid McGrath, Nik Studzinski, Ben Bilboul and Jon Wilkins – intends to expand Accenture Interactive business in Europe, Africa, the Middle East and Latin America.

Enhancing Digital Capabilities

Since the formation of Accenture Interactive, the company has made significant acquisitions to enhance its digital marketing capabilities, including the acquisition of Reactive Media, an Australian digital services provider and Brightstep, a Swedish digital content and commerce solution provider.

In April this year, Accenture acquired a majority stake in IMJ Corporation, a full-service digital agency. Prior to that, Accenture acquired AD.Dialeto, Pacific Link and Chaotic Moon. These acquisitions are part of the company’s efforts to bolster its digital marketing capabilities globally.

In our opinion, the acquisition of Karmarama will further help Accenture in providing end-to-end digital marketing services, which will bring a deeper and broader set of digital solutions to its clients.

Considering the growing need for digital marketing, we expect Accenture’s investment in digital and marketing capabilities to boost long-term growth. It will also help the company in effectively competing with other digital marketing service providers such as International Business Machines Corp. (IBM - Free Report) , Dell and Deloitte.

Acquisitions – A Key Growth Strategy

Accenture pursues strategic acquisitions to diversify its offerings and expand operating markets. So far this year, the company has either completed or has signed about twelve acquisition deals across various business segments, including IT security, CRM capabilities, strategy consulting, etc. Last year, it had closed 21 takeovers.

These acquisitions have enabled Accenture to foray into newer markets, diversify and broaden the product portfolio, and maintain its leading position. A strong cash balance of $3.50 billion and an operating cash flow of $2.52 billion at the end of third-quarter fiscal 2016 are expected to support Accenture’s inorganic growth strategy.

Bottom Line

Accenture’s long-term prospects look promising due to sustained focus on new and innovative product launches, continuous investments in enhancing digital and marketing capabilities, as well as major acquisitions. Moreover, we believe that regular acquisitions will significantly contribute to the company's revenue stream.

Notably, shares of Accenture have been steadily treading higher on a year-to-date basis. The stock generated a return of 15.7%, which outperformed the Zacks Consulting industry gain of 14%.

Currently, Accenture carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A couple of other stocks worth considering in the broader technology sector are Cirrus Logic Inc. (CRUS - Free Report) and FormFactor Inc. (FORM - Free Report) , both sporting a Zacks Rank #1.

Cirrus Logic has witnessed upward estimate revisions in the last 60 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 53.68%.

Estimates for FormFactor have also moved up in the last 60 days. It has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 21.97%.

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