Global SA (NYSE: GLOB) is poised to expand its business outside of the United States and has adopted acquisition as a strategy to achieve this goal. In this thesis, I will talk about these acquisitions by GLOB and how they will not only help the company to grow but also to diversify its risks. I will also analyze the financial performance of the company during the last quarter and its future objectives.
Expansion through continuous acquisitions
GLOB pursues a series of continuous acquisitions to expand its operations in different geographies and target broader markets outside of the United States. The company currently derives 65% of its revenue from North America, with the majority coming from the United States. It generates only 3% of its turnover in the Asia-Pacific region and 10% in EMEA countries. With the recent acquisitions, the company plans to increase its revenue and market share by tapping into developing markets in the Asia-Pacific region and further expanding its operations in EMEA countries.
eWave is a leading digital commerce consultancy with the majority of its operations in Asia and Australia. eWave mainly specializes in adobe and salesforce commerce solutions. It has offices in major cities in China, Singapore, the Philippines, Australia, India, France and England. Some of its customer base includes big companies like L’Óreal, Nike, Coca-Cola and Cochlear. I believe the acquisition of eWave will open doors for GLOB in the Asia-Pacific region, where it has a relatively smaller market share. With the majority of GLOB’s revenues coming from the United States, the company is now looking to diversify its risks and reduce its reliance on one particular market. The acquisition should generate significant revenues for the company in the coming quarters. eWave has a significant technological advantage in terms of technological advancement in the digital commerce space, which I believe will play an important role in improving and improving GLOB’s services, and the expertise of Adobe and sales force will complement the existing services provided by GLOB to its customers.
Martín Umaran, co-founder of Globant, commented,
eWave joins Globant with perfect timing as we expand and solidify our portfolio and reach new markets. The two corporate cultures fit together perfectly and we look forward to continuing to grow with such a talented team.
System data acquisition
Sysdata is a business and technology consulting firm based in Bologna, Italy. She specializes in the field of digital transformation and has clients spread across Europe. Sysdata provides consulting services and digital transformation services to multinationals from different industries including banking, automotive, energy, etc. significant share over the next five years. I believe this acquisition is crucial in the company’s expansion strategy as it will help GLOB access the wider European market and build on its existing customer base in the EMEA region. I think the company could see a significant impact from this acquisition in the coming quarters, with improved profit margins and increased revenue provided by Sysdata.
Martin Umaran, co-founder of Globant and President of EMEA, said:
Sysdata joins Globant to consolidate our expansion in Europe. We have been impressed with their portfolio of long-standing clients in some of Italy’s most important sectors, such as banking, insurance and automotive. Globant will complement these and other offerings to continue supporting successful digital transformations.
GLOB recently announced its results for the third quarter of 2022. The results are in line with market expectations in terms of EPS and revenue targets. The company saw significant improvement across all segments, including revenue and EPS. However, earnings and operating margins remained stable compared to the third quarter of 2021. I believe the company is on a significant growth trajectory with continued acquisitions, and maintaining profitability while expanding operations is a positive sign from a financial point of view.
GLOB reported revenue of $459 million for the third quarter of 2022, a significant increase of 34% compared to the corresponding quarter of last year. This increase can be mainly attributed to the increase in revenue from the United States and an increase in the price of the USD against other currencies. The company makes 81% of its revenue in USD. GLOB experienced a significant increase in cost of revenue, up 36% from $210 million in Q3 2021 to $286 in Q3 2022. Based on my analysis, rising inflation has driven this increase. The company reported operating profits of $52 million, a 30% jump from the same quarter last year. The company increased its workforce from 21,850 employees in the third quarter of 2021 to 26,500 in the third quarter of 2022. The increase in human resources is part of the company’s expansion strategy, but it has also led to increased costs for the company. The company, however, managed to maintain its gross profit margins around 37.5% despite rising costs mainly due to higher revenues. GLOB reported diluted EPS of $0.84, a 40% increase from EPS of $0.60 in the same quarter last year.
According to my analysis, the company has performed extremely well despite the global recession and high inflationary headwinds. With the return of global markets and given the recent acquisitions by the company, I believe the financial performance of the company will see significant improvement in the coming quarters. The company provided the FY22 outlook with estimated revenue between $1.75 billion and $1.85 billion, giving us fourth quarter 2022 revenue estimates of between $485 million and $490 million. I think the company should easily achieve these goals with strong financial performance by far in fiscal year 2022. The company estimates adjusted diluted EPS for fiscal year 22 at a low of $5.06, which gives us gives an estimate of Q4 2022 EPS of $1.37. I believe the company is an excellent buying opportunity for investors looking for a growing company with improving financial performance.
Martín Migoya, CEO and co-founder of Globant, commented,
We continue to be a leader in the broader technology market. Globant is fully committed to delivering 360-degree digital transformations with consumer-centric solutions. We execute our strategy through intelligent process optimization, which helps our clients streamline their operations and achieve maximum efficiency. Our end-to-end capabilities help organizations deliver innovative experiences to their customers, resulting in better performance and higher returns. Our unique approach sets us apart from other players in the industry. Just recently, Frost & Sullivan awarded Globant the 2022 Company of the Year award in the global digital transformation services industry. We look forward to continuing to expand our reach to other regions and industries.
GLOB has positive technical indicators, suggesting a buying opportunity at current price levels. The company has established a double-dip pattern at price levels of $160, which is considered a bullish technical pattern, and the stock could experience a breakout from current price levels for a 15-20% upside. . The $160 price level is also a very strong support zone for the stock, as the stock has tested $160 price levels several times and bounced from there. This provides investors with limited risk exposure relative to current price levels. The stock is trading near its 200-day EMA, and once the stock crosses the 200-day EMA, we can see further bullish momentum in the stock price. The RSI indicator suggests that the stock is in the buy zone. The stock is trading between the 40-50 RSI band area, which is considered a good buy zone for the stock. Overall, my technical analysis points to a good buying opportunity for the stock at current price levels.
Main risks faced by GLOB
Heavy reliance on fewer customers
GLOB served approximately 1,114 customers during the third quarter of 2022; Of these customers, the top customer accounted for approximately 11% of total revenue, and the top five and ten customers accounted for 27% and 39%, respectively. This reflects the company’s dependence on its main customers. Heavy reliance on a small number of customers is generally considered a risk for a business organization. However, the company continues to grow and face this risk by expanding its customer base globally.
Is GLOB worth buying?
GLOB is currently trading at a stock price of $175, down 44% from the prior year period. GLOB is trading at a P/E multiple of 35x with a forward EPS estimate of $5.06. Compared to peers like DCX Technology and Amdocs Limited, with P/E ratios of 8.5x and 15x, respectively, the stock may seem overvalued. However, for growing companies like GLOB, PEG ratio analysis is a better tool to measure company valuation. GLOB currently has a PEG ratio of 0.87x with an estimated EPS growth rate of around 40%, a PEG ratio below 1x is considered good for growing companies. I think the company is on the right growth trajectory, and even with the higher P/E multiple, the company is undervalued in terms of the PEG multiple.
GLOB is on a wave of acquisitions with the aim of expanding its operations in different geographies and building a sustainable and diverse customer base. I believe the recent acquisition of eWave and Sysdata will drive the company’s growth in the near future and help it expand globally. The company also has positive technical indicators suggesting a buying opportunity at current price levels. The company is also undervalued according to my PEG ratio analysis, and I would recommend investors buy GLOB at current price levels.