Globant (GLOB 52.79, -0.10, -0.19%) is trading modestly lower despite reporting solid
Q3 results last night. Globant is a technology service provider that helps
companies go digital. GLOB is based in Buenos Aires, Argentina but around 80%
of its revenue comes from North America. The company is benefiting from strong
demand as companies look to achieve digital transformations with artificial
intelligence (AI) and Internet of Things (IoT) being a big part of these
transformations. Also, GLOB is increasingly attracting larger accounts.
Historically, traditional IT providers have focused on delivering custom applications based on detailed client specs, while digital agencies emphasized creativity (visual design, user interface etc.) but without the depth of engineering expertise. GLOB says it's a play on the ongoing paradigm shift whereby customers want IT providers to not only handle the rigorous engineering requirements of emerging technologies (mobile, social media, cashless transactions, big data etc.), but also offer creative talent normally provided by digital agencies. GLOB handles both sides of the equation.
Turning to the Q3 results, Non-IFRS (foreign equivalent of non-GAAP) EPS jumped 24% Yr/yr to $0.46, which was above prior guidance of $0.41-0.45. Revenue rose 22.7% yr/yr to $134.6 mln, which also was above prior guidance of $131.5-133.5 mln. The guidance was quite strong as GLOB expects Q4 non-IFRS EPS of $0.45-0.49 and revenue of $138-140 mln as the mid-points of both were above market expectations.
On the call, GLOB said that in the US it has engaged in major long-term deals with some of its key accounts. For example, Globant has been working for MTA for more than a year in one of its most strategic digital projects. It has also started to work with a multinational professional services firm in several data initiatives as part of the data transformation agenda. In Latin America, GLOB continued to see strong growth in its business coverage, focusing on countries like Argentina, Chile, Colombia, and Mexico.
In Europe, GLOB is working on a wide variety of strategic programs. It's helping one of the leading retailers in the world to build a more scalable API platform. Also for a global leading financial institution, GLOB is working on the evolution of a mobile product that can scale to millions of consumers, while being used across several countries.
Additionally, Globant has incorporated some important logos to its portfolio. Globant is now working with Uber, supporting the deployment and integration of UberEats. It also has added FanDuel, a leader among daily fantasy sports providers and an important brand in the recently legalized sport betting market in the US.
In terms of industry diversification, GLOB notes that it remains pretty much balanced among different verticals. Its top three verticals for Q3 were: Media & Entertainment with 26.2% of revenue, Banks, Financial Services and Insurance with 22.3% and Travel and Hospitality with 17%. Its exposure to the Consumer, Retail and Manufacturing space keeps growing from 8.4% in 3Q17 11.4% in 3Q18. This signals that digitalization has expanded into expected industries such as manufacturing, which opens new opportunities to companies like Globant.
In sum, despite trading mostly flat over the past year, this stock has been in a general uptrend since its IPO in July 2014. Globant has been posting steady and solid earnings results as it's seeing strong overall demand for its services and it has been getting great traction at key strategic accounts. Lots of companies are moving to digitalization and Globant is benefiting from this trend, which has a long way to go. Clients keep searching for ways to connect emotionally with their customers, propelled by emerging technologies such as artificial intelligence. As to why the stock is not trading higher, our sense is that GLOB has let investors get accustomed to steady EPS beats. It's not a flashy company, it just keeps posting solid results, which in the long run is not a bad thing.
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