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1 Unstoppable Stock to Buy and Hold

By Trevor Jennewine – Dec 18, 2021 at 5:00AM

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Globant's business should benefit as digital transformation efforts gain momentum.

Globant (GLOB 1.29%) provides IT consulting and product engineering services to its clients, helping them achieve digital transformation initiatives. That may sound boring, but the company specializes in a range of emerging technologies, from artificial intelligence to virtual reality. More importantly, it provides an important service that should only become more valuable in the years ahead.

In this Backstage Pass video, recorded on Nov. 19, Motley Fool contributor Trevor Jennewine discusses Globant's third-quarter financial results, explaining why this stock looks unstoppable in the long run.

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Trevor Jennewine: Globant specializes in IT consulting and product engineering. What that means is that they basically help businesses build and deploy new solutions. That might be new software services, it could be designing a new product or a new interface for a product, or just generally revamping the customer experience. But in all cases, Globant brings that external perspective to the mix, along with an expertise in a range of different emerging technologies. This is things like artificial intelligence, blockchain, cloud computing, gaming, virtual reality. You name it. If it's a trendy technology, Globant probably can help.

The company now has over 21,000 employees. So it's steadily growing its business. Most of those are advisors, designers, and engineers with specialties in the technologies I just mentioned. It also works with a lot of big names in the software and cloud space like Amazon, Microsoft, Adobe, Salesforce. That's the business model.

The company reported third quarter results yesterday and let's see. Revenue came in at $342 million, that was up 65%. Beat on the top line. Adjusted earnings were $0.98 per diluted share. That was up 75%, a beat on the bottom line there. Adjusted earnings back out some of the things like stock-based compensation and acquisition-related charges and if you add those back in of the non-adjusted earnings were $0.60 per diluted share and that was up 100%. However, that was a slight miss on the bottom line. The stock is down about a percentage point today. All things considered, this looks like a strong quarter, so that's the only real flaw I see here.

Another thing I wanted to note. So Globant, 75% of its headcount is in Latin America. During the quarter, 65% of its revenue came from North America, 22% from Latin America, and then 11% from Europe. The Asia-Pacific region is a growth opportunity for the company, as is Latin America. It has a significant percentage of its employees in that region.

Looking at the customers, the company now has over a thousand customers, and that number was up 14%. But it's big customers -- so the ones that are spending over $1 million each year -- they have 162 of those now, and that was up 37%. They're ramping their customer spend at a good pace, which is encouraging.

Looking at some other highlights. One concern is that their top customer now accounts for 11.5% of revenue. That's a little bit higher than it was last year. It was 10.8% in the same quarter last year, and this is Walt Disney. Walt Disney is a strong business, it's not going anywhere, but it's still worth noting that there is some revenue concentration there, and ideally, we'd like to see it going the other direction. But if you zoom out a little bit and look at their top 10 customers, they accounted for 40% of revenue during the quarter, and that was down from 45% last year. That figure is moving in the right direction.

A couple other things: So Globant, they break their business up into studios. Studios is the term that they use for their areas of expertise. All those different technologies I mentioned earlier, those are the studios that Globant offers, and they currently have 31. They debuted some new products recently, and they have a new category of studios called Reinvention Studios. These are products aimed at disrupted industries and modernizing legacy business models. I like that approach, so there's one for airlines, media and entertainment, travel and hospitality. I think, I like that approach the management's taking there.

Maybe more exciting, they recently announced a metaverse studio, so this is going to be a collection of tools that help businesses build metaverse experiences and technologies. It's relatively vague at this point, that it's brand-new. But I like that they're getting a jump on that industry. It could be a big deal down the road, and so I like that they are continually innovating.

Looking at quarter four, the company is expecting about $359 million in revenue, that will be up 54%. And the CEO, Martin Migoya mentioned that he is expecting full-year revenue to rise above 56%, and that would be the fastest revenue growth in the company's history. Globant was founded in 2003, so that's an impressive statistic. Adjusted earnings are looking for $1.01 per diluted share, up 44%. Strong guidance.

Like I mentioned, I like this company. I like that the founder, Martin Migoya is still the CEO. Like we mentioned on Backstage the other day, the company seems to have a great culture. The CEO has a 96% approval rating, 93% of people would recommend the company to a friend, based on Glassdoor. That just tells me that the company has a good culture. I also like the way, like I mentioned, that they continuously innovate, and they keep pace with these emerging technologies. I think the metaverse studio is a great idea. Just generally speaking, these IT consulting services have a tremendous market opportunity. Businesses need a strong digital presence if they want to be competitive today, and they need to be able to implement the latest technologies, and that can be difficult to do on your own, so having an external partner that brings those market insights and expertise to the table is valuable.

Management currently puts the company's market opportunity at $154 billion by next year, but they also mentioned during the call that the IDC forecasts that enterprises will spend $6.3 trillion of digital transformation initiatives between 2022 and 2024. The market's just getting bigger. Globant has a lot of room to grow. You can see from the stock chart that it has been an outperformer over the past year. But I think this is a great stock to have in your portfolio.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine owns Adobe Inc., Amazon, and Walt Disney. The Motley Fool owns and recommends Amazon, Globant, Microsoft,, and Walt Disney. The Motley Fool recommends Adobe Inc. and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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