Globant Is a High-Growth Leader in Digital Transformation Services

Senior Equity Analyst

Rob Hales

Globant, headquartered in Luxembourg but largely based in Latin America, is an information technology services company focused on providing digital transformation and engineering services. It generates revenue mainly by charging clients on a time and materials basis for services such as consulting/advice, customized software development and integration, and quality assurance and testing. Globant is primarily exposed to the media and entertainment and financial services sectors, which each account for around 20% of revenue. 

Like many of its peers, Globant’s core strategy is to land and expand, which means securing big clients and growing revenue in those relationships by increasingly providing these clients more services. Globant’s 10 largest clients account for around a third of group revenue, with the largest, Walt Disney, contributing around 10%. Disney has been a client for over 10 years.

Globant is geographically concentrated, with nearly two-thirds of its revenue generated in North America. The company is now focused on diversifying geographically, particularly in Europe. 

Globant’s “studio” delivery model is based on agile project management from employees in nearshore locations. By organizing itself in small units focused on a particular industry or emerging technology (studios), the company develops deep pockets of expertise and can deliver innovative solutions to its clients faster than many of its peers. To best serve a client’s unique digital transformation goals, the flexibility from the iterative nature of agile project management is effective. Furthermore, the non-standardized nature of these projects requires constant dialogue and interaction between Globant and its clients, which means it’s best to have delivery teams with similar time zones to its clients (nearshoring) so as to deliver the project successfully in a timely manner.

Globant generally aims to grow revenues at three-four times the IT services market and is striving to reach a 17% non-GAAP operating margin in the medium term.

Business Strategy & Outlook

We think Globant has a narrow moat based on switching costs. The company’s historical return on invested capital, including goodwill, has typically been in the 15%-20% range. We expect Globant’s ROIC to be fairly stable at a similar level in our forecast period despite our expectation for strong revenue growth due to a relatively low level of operating leverage in the business. 

The IT services industry is highly fragmented. According to Statista, the global IT services market has a value around $1.1 trillion. Even the largest players like Accenture, Tata Consultancy, and Capgemini would typically only have a low-single-digit market share. Globant, with less than $2 billion in revenue, has less than 1% market share. We consider Globant, along with EPAM Systems and Endava to be leaders in the attractive area of digital transformation services. These companies typically have more of a consulting role with their clients and a larger focus on engineering services to help their clients build new products and serve their own clients (that is, to generate revenue) using new technologies. Traditional IT service providers, meanwhile, are experts in legacy technologies and focus on commoditized development, integration and maintenance engagements where cost (and cost saving) is key. 

We think switching costs are based on time investment, risk aversion, mission criticality, and multiple customer touchpoints. Globant undertakes customized, highly interactive work engagements for its clients. Accordingly, the relationship typically starts small and grows over time as trust and familiarity is established. Once Globant solidifies this trust as a capable business partner and digital strategic consultant, the additional time and disruption needed for customers to be confident in an alternative provider is a significant deterrent to switching. Most companies consider digital transformation of their operations as mission-critical now. Globant asserts that 90.5% of its revenue is generated from existing clients, implying an average customer life of 10 years, which supports our narrow moat rating. 

The vast majority of Globant’s clients are large enterprises, which, by their very nature, are stickier relationships given the inherent complexity of their operations and propensity for risk aversion. Globant, like its peers, typically has a land-and-expand strategy where it primarily tries to increase its business with current customers by offering them services in varying parts of their operations. This creates multiple touchpoints in a customer’s operations that lead to increased switching costs. 

We think Globant differentiates itself from traditional IT service providers through its studio model strategy, whereby it organizes itself into more than 30 small units or studios that are essentially autonomous and follow an agile project management philosophy. Each studio is focused on a particular vertical or emerging technology. This enables Globant to build deep industry expertise and deliver innovative, highly customized solutions to clients in a timely manner. Furthermore, Globant generally follows a nearshoring strategy for its employee base versus offshoring. This means its employees share the same time zone and typically have a cultural affinity with the clients they serve, which fosters close client relationships, increased responsiveness and more efficient delivery of solutions. This is why around two-thirds of its employees are based in Latin America, particularly Argentina and Colombia, to support its primarily U.S.-based clients. We think this strategy deepens customer relationships, thereby increasing switching costs. 

Globant typically contracts with its customers via a multiyear master services agreement. This agreement spells out the framework of the relationship but generally does not include any monetary commitments to a certain amount of work. Globant’s revenue is split around 50/50 between long- and short-term projects with long-term projects deemed to be longer than 24 months. During a work project, the chance of a client switching providers is slim to none given the disruption that would cause. However, upon completion, the software and intellectual property is owned by the client and, in theory, Globant could be replaced by a cheaper competitor providing only a maintenance-type service. However, typically there is always another upgrade or enhancement of the original project to be undertaken. As long as the customer is satisfied with Globant’s work, switching providers is rare, given the familiarity and trust built with Globant and the cumulated knowledge Globant has developed with the customer’s IT systems. Therefore, clients have limited motivation to switch providers due to the additional time and effort it would require to get a new provider up to speed.

Narrow

Economic Moat

Globant

Globant SA engages in the provision of information technology services. It includes application development, testing, infrastructure management, and application maintenance. The company was founded by Martín Migoya, Martín Gonzalo Umaran, Guibert Andrés Englebienne, and Néstor Augusto Nocetti in 2003 and is headquartered in Luxembourg.

Earnings data Q2 2021

Earnings data Q3 2021

Earnings data Q4 2021

Earnings data Q1 2022

Earnings data Q2 2022

Earnings data Q3 2022

Earnings data Q4 2022

Earnings data Q1 2023

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Globant achieves 17.7% revenue growth in Q1 2023 earnings call

Globant's Q1 performance reflects strong revenue growth, client loyalty, and a focus on sustainable initiatives. The company faces challenges in maintaining margins while expanding and anticipates future opportunities in AI-related discussions and acquisitions. Globant's unique approach to customer engagement and AI-powered products positions it for continued success.

Globant reports record Q2 revenue and focuses on AI growth

Globant's Q2 2023 earnings call highlighted record revenue, strong growth, and a focus on AI and digital transformations. While facing challenges from FX market changes and slower European growth, the company is optimistic about sequential growth and sees opportunities in AI, Latin America expansion, and evolving client conversations.

Globant reports strong Q3 performance and eyes global technology opportunities

Globant's Q3 performance reflects robust revenue growth, a strong client base, and a focus on technology leadership. While facing challenges related to FX impact and market competition, the company is well-positioned to capitalize on global technology spending and expand its presence in key markets. With a strong focus on AI and digital solutions, Globant is poised for continued growth and innovation.

Globant reports strong Q4 earnings, eyes AI growth opportunities

Globant's Q4 2023 earnings call highlighted robust financial performance, strategic initiatives in AI and acquisitions, and a positive outlook for 2024. The company's focus on profitability, revenue diversification, and organic growth expectations position it well for continued success in the competitive IT services market.

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

SAN FRANCISCO, July 30, 2020 /PRNewswire/ -- Globant (NYSE: GLOB), a digitally-native technology services company, today announced the launch of the Continuity Studio to help businesses face new challenges driven by the pandemic. Throughout the years, Globant has built broad expertise.

Globant Launches New Studio to Fuel Business Continuity in a Post-Pandemic Era

The AI-powered software company's stock is up nearly 300% over the last three years.

Why Globant Stock Jumped 41.3% in the First Half of 2020

SAN FRANCISCO, June 18, 2020 /PRNewswire/ -- Globant (NYSE: GLOB), a digitally native technology services company, announced a new virtual edition of CONVERGE. It will bring together renowned experts to participate in tech ignite talks and exclusive business roundtables. Speakers and...

Globant's Flagship Event, CONVERGE, Goes Fully Digital and Extends to Three-Part Series

SAN FRANCISCO, May 22, 2020 /PRNewswire/ -- Globant (NYSE: GLOB), a digitally native technology services company, released its Q2 Sentinel Report, an initiative designed to help organizations maintain relevance through the observation of industry trends, insights and consumer behaviors...

New Globant Report Explores How to Reinvent Industries for Today's Unanticipated "New Normal"

Globant shows improving price performance, earning an upgrade to its IBD Relative Strength Rating.
The post Softaware Developer Globant Shows Strength 91 RS Rating appeared first on Investor's Business Daily.

Softaware Developer Globant Shows Strength 91 RS Rating

Globant S.A. (GLOB) CEO Martín Migoya on Q1 2020 Results - Earnings Call Transcript

Globant (GLOB) delivered earnings and revenue surprises of 1.59% and 0.70%, respectively, for the quarter ended March 2020. Do the numbers hold clues to what lies ahead for the stock?

Globant (GLOB) Surpasses Q1 Earnings and Revenue Estimates

Solid Start To The Year Amidst COVID-19 Crisis First quarter revenues of $191.6 million, up 31.1% year-over-year IFRS Diluted EPS of $0.35 for the first quarter Non-IFRS Diluted EPS of $0.64 for the first quarter LUXEMBOURG, May 14, 2020 /PRNewswire/ -- Globant (NYSE: GLOB), a digitally...

Globant Reports 2020 First Quarter Financial Results

Paycom Software

Twilio

The future looks incredibly bright for these high-growth businesses.

Got $1,000? Buying 3 These Stocks Now Could Be a Genius Move

Globant (GLOB) is well positioned to outperform the market, as it exhibits above-average growth in financials.

3 Reasons Why Globant (GLOB) Is a Great Growth Stock

These three metrics reveal the strength of the tech services organization's business model.

3 Reasons Why Globant Stock Is Surging

Globant's (GLOB) CEO Martin Migoya on Q4 2019 Results - Earnings Call Transcript

Globant (GLOB) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Will Globant (GLOB) Beat Estimates Again in Its Next Earnings Report?

Optimism growth tied to Disney+'s global roll-out helped shares surge higher last month.

Why Globant S.A. Rallied 15.7% in January

Globant: A Premier South American Investment

Does Globant (GLOB) have what it takes to be a top stock pick for momentum investors? Let's find out.

Are You Looking for a Top Momentum Pick? Why Globant (GLOB) is a Great Choice

Cronos Group

Fortuna Silver Mines

Despite a rising market, these stocks fell sharply.

Why Cronos Group, Globant, and Fortuna Silver Mines Slumped Today

Globant S.A. (GLOB) CEO Martin Migoya on Q3 2019 Results - Earnings Call Transcript

Globant (GLOB) delivered earnings and revenue surprises of 5.08% and -0.03%, respectively, for the quarter ended September 2019. Do the numbers hold clues to what lies ahead for the stock?

Globant (GLOB) Q3 Earnings Top Estimates

Globant: Optimism Ahead Of Earnings

Globant (GLOB) has been upgraded to a Zacks Rank #2 (Buy), reflecting growing optimism about the company's earnings prospects. This might drive the stock higher in the near term.

Globant (GLOB) Upgraded to Buy: What Does It Mean for the Stock?

Globant is a succesfull IT player focused on digital transformation services.

Globant Stock Is Positioned For Attractive Returns

The IT solutions provider sees growth accelerating in the last two quarters of the year.

Globant Lifts Full-Year Guidance After a Strong Q2

Globant S.A. (GLOB) CEO Martin Migoya on Q2 2019 - Earnings Call Transcript

Globant (GLOB) delivered earnings and revenue surprises of 1.92% and 0.06%, respectively, for the quarter ended June 2019. Do the numbers hold clues to what lies ahead for the stock?

News for Globant Stock (GLOB)