Globant SA - Delivering Digital and Cognitive Solutions
Brandon Hemmelgarn
Portfolio Manager and Research Analyst
Globant (GLOB) is a Latin American-based, leading provider of information technology outsourcing services. The company’s services focus on driving digital transformations for organizations worldwide, with most clients based in North America and Western Europe. The company provides a unique expertise focused on the fastest growing, emerging technology segments of the IT market, including artificial intelligence (AI), augmented (AR) and virtual reality (VR), screenless user interfaces (such as voice operated speakers), and ensuring consistent, high quality user experiences across an increasingly complex universe of connected devices.
Company Background
GLOB was founded in 2003 and opened its first office in 2006 outside Buenos Aires, Argentina. Globant IPO-ed in 2014 on the NYSE, and is currently a $3.3bn market cap organization with over 9,000 IT professionals. The company has grown rapidly by investing internally in its Studio operating units to ensure a deep understanding and expertise of technologies critical to digital organizations. Globant has augmented this growth over the years through acquisitions to support this expertise. The company further enhances its value proposition to its customers by utilizing an employee base predominantly located in lower cost Latin American countries (over 75% of employees are based in Latin America) such as Argentina and Colombia, which previously represented an underutilized talent pool of IT professionals. As a result of these advantages, GLOB has achieved rapid growth, including revenue growth at an annual rate of 32% since 2010 to reach $522M in 2018.
Differentiated Leader in Digital Transformations
Globant helps businesses implement digital transformations to take advantage of the latest technological trends to improve productivity and better connect with their employees and customers. With a constantly changing technological landscape, successful organizations across industries and geographies must develop digitally native cultures to keep pace and support innovation. GLOB helps organization in a wide variety of ways to succeed in this environment via building digital products, evolving company culture, and enhancing IT department capabilities to be more agile to react to the latest trends and business needs.
Globant differentiates its model in several ways from traditional IT service providers. The company delivers its services using its Agile Pod model, which gives individual teams more autonomy when working with clients to improve the speed and quality of decision-making when responding to each customer’s unique needs. GLOB takes a more comprehensive approach with clients using its Organizational Fitness Lifecycle, recognizing that individual patchwork solutions may provide short term fixes but are less sustainable than Globant’s approach to more broadly transform the organization to help it succeed in the digital world. Additionally, Globant’s knowledge base is organized around its Studio model, to ensure a deeper understanding of the latest technologies that can be applied across industries. Examples of Studios include User Experience (UX) Design, Cloud Operations, Artificial Intelligence, and Internet of Things (IoT).
Successful Track Record Continues to Build
The success of Globant’s differentiated business model and investments across important digital areas is evident through its financials and consistent awards for quality from leading third party organizations.
The company has grown both by adding new clients and expanding relationships with existing clients. A key focus of the company has been on deepening relations with existing blue chip customers through its 50-Squared Strategy in order to drive growth along with recurring revenue. The strategy has successfully increased the number of clients generating over $1 million in annual revenue from 46 in 2014 to 90 in 2018. Examples of the leading organizations that partner with Globant include Coca-Cola, Disney, Google, and Southwest Airlines.
GLOB’s secret sauce has led to a 32% annual average top line growth rate since 2010. And with its relatively low cost IT professional base in Latin America, the company has achieved this rapid growth while delivering profitability – over the same period GAAP net income grew at a 33% rate. With favorable macro trends supporting growing demand for digital services and Globant’s small size relative to other IT outsourcing service providers, the company should continue to have a long runway of robust growth ahead of it.
Source: Company Reports, Thomson Reuters Consensus Estimates, & Shaker Investments
Risks
•Emerging market currency and political risk – with over 90% of employees based in emerging markets, including 30% in Argentina and 27% in Colombia, Globant is subject to additional risks that arise from operating in emerging economies such as currency fluctuations, inflation variability, and political instability.
•Valuation – The 12 months forward Price / Adj. Earnings (P/E) ratio has risen from 28x when we initiated our position in 2018 to a peak of over 40x in July 2019. The high multiple seems to be justified by rapid earnings and revenue growth.
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