Revenue growth of ‘fastest five’ service providers slows, but investments show promise

In Q1 2024, the cutback in discretionary spending by enterprises continues to be driven by market headwinds. Revenue growth⁽¹⁾ of leading IT and business service providers is affected and continues to plunge. Enterprises have been reprioritizing their spending and investing in large strategic deals related to cloud, data, and infrastructure migration and modernization with a blend of automation, AI/ML, and, of course, GenAI. Smaller mid-tier⁽³⁾ providers are more prone to market swings, but we typically expect them to report higher growth rates than their larger peers—this was again the case in Q1 2024. Although the growth rate of the fastest five service providers is slowing, aggressive expansion and investments continue to generate a positive long-term outlook and strong revenue performance.

Let’s explore the financial reports of the ‘fastest five’—the providers reporting the highest year-over-year revenue growth rate in Q1 2024. For enterprises seeking a new partner, the following five providers offer a unique opportunity to find a firm balancing impressive growth with mid-tier flexibility:

• Globant reported 21% YoY revenue growth in Q1 2024, making it the fastest-growing of the service providers we tracked in the quarter. Undoubtedly, the income from Globant’s numerous acquisitions in recent years, alongside its diversified revenue composition, plays a significant role in the revenue boost. Globant reported revenue growth across every region and almost every industry, with tech, telecom, and professional services reporting slight revenue declines.
• Sonata Software reported 14.5% YoY revenue growth in Q1 2024. While Sonata’s revenue grew YoY, it posted a 12% quarter-on-quarter decline, showing the volatility of the wider market today. Sonata is striving to successfully integrate its investment in Quant Systems to help it win more large deals due to its expanded capabilities and geographic reach plus the market positioning of the PLATFORMATION framework and Modernization and Digital Engineering company. It will be interesting to see how this impacts revenue performance in future quarters.
• Persistent reported 13.2% YoY revenue growth in Q1 2024, thanks to good performance from its focus sectors: healthcare and life sciences, BFSI, software, high tech, and emerging industries. It reported double-digit (16.4% YoY) growth in North America but a decline in Europe, which Persistent’s leaders advise was driven by political uncertainty.
• EXL reported 9.0% YoY revenue growth in Q1 2024, driven by its insurance, emerging business, and analytics businesses. EXL’s leaders advise that its continued capability focus on domain, data, analytics, and AI has helped the company cross-sell and win larger integrated deals in the challenging macroeconomic environment. EXL acquired Datasource and Clairvoyant to bolster its data capabilities and expand its talent pool, particularly in AI.
• Coforge reported 8.5% YoY revenue growth in Q1 2024. Revenue grew across its three focused verticals and geographies. In early 2024, Coforge announced the acquisition of Cigniti, which it expects to complete by early 2025—indicating that a notable uptick in revenue is expected. Coforge’s leadership is known for its risk-taking maneuvers and believes this acquisition will help them expand into new verticals, gain more logos, and improve penetration in North America.

The Bottom Line: The fastest five service providers continue to maintain above-average growth rates in Q1 2024 amidst an industry-wide slowdown, thanks to their strategic investment, flexibility, and willingness to adopt risk.

One of the top reasons for awarding vendor consolidation and large deals is the past and ongoing relationship between enterprises and service providers. Thus, the growth-hungry mid-tier ‘fastest five’ service providers are on the right path with their strategy of continued investments in their business if they want to retain their top enterprise clients. These investments are vital for helping them expand their global delivery locations and the end-to-end capabilities required to win the deals mentioned above. Acquisition is a fast but risky method to achieve the same. Proper integration is a must to derive the initial envisioned synergies. Also, leaders of service providers, in their long-term vision, should not forget about investments in talent, IP, and accelerators (to speed up delivery) and relevant client stories to attract and retain clients.

Note: (1) Growth data represents HFS estimates based on analysis of publicly available information. The year-on-year (YoY) growth compares a quarter with the same quarter the previous year. (2) HFS considered Accenture, Capgemini, Coforge, Cognizant, Conduent, DXC, EPAM, EXL, Genpact, Globant, HCLTech, IBM, Infosys, Kyndryl, LTIMindtree, Mphasis, Persistent, Sonata Software, TCS, Tech Mahindra, Wipro, WNS, and Zensar for this analysis. (3) HFS definition of mid-tier companies – Revenue between USD 500 million to USD 2 billions