Globant’s Focus on Emerging Areas Makes it a Unique Play in the IT Services Industry

Globant is a leading IT services company based in Luxembourg that operates through subsidiaries located mainly in various Latin American countries. Unlike India-based IT firms that have excelled in supporting large infrastructure systems or Eastern European firms that have excelled in complex engineering solutions, Globant belongs to a specialized class of vendors that are poised to benefit across two fronts—the rise of Latin America as an important IT hub and exploiting the talents of that workforce on the digital creativity front. The rise of social, mobility, analytics, and cloud (also known as SMAC) has created a new paradigm in the IT industry.

Unlike other larger vendors, Globant has emphasized these emerging technologies since its inception. With its dozen-plus studios, Globant has amassed expertise in multiple emerging technologies, which in turn has enabled the company to offer innovative solutions and outgrow its peers. In many ways, we believe that the company’s focus on emerging areas makes it a unique play in the IT services industry. The strength of the business model is validated by the roster of tier-1 customers, many of which have been customers for several years; these include Google, Disney, LinkedIn, Electronic Arts, and Southwest Airlines.

With large budgets (both IT and marketing) and a focus on leading technologies, we believe Globant is strategically positioned to benefit from growth of these companies over the next several years. Between 2011 and 2014 (William Blair estimates), Globant has increased its top line at a 30% compound annual rate, significantly above its peer group at 17% during the same time. We believe that Globant is positioned to increase its top line at 20%-plus, higher than the NASSCOM’s IT industry growth rate of 12%-14%.

The situation in Argentina plays well for Globant on two fronts. First, continued pressure on the peso is positive, since the company incurs most of its costs there and further devaluations will help the company. Second, in uncertain times such as these, we believe employees will want to be at companies that derive the majority of their revenues from North America and Europe. Using calendar 2015 projections, Globant shares trade at 14.6 times our EPS estimate of $0.82 and 1.7 times on an enterprise-value-to-revenue basis (a 7% and 8% discount to its peer group, respectively). We view this discount as compelling, given the company’s 20%-plus growth rate and impressive margin pro

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