Globant: A Second Stage AI Player

Core Viewpoint - The financial markets are questioning whether Globant and similar IT consulting firms will be rendered obsolete by AI or become essential in its implementation [2][5] Company Performance - Globant, based in Argentina, has returned over 18 times since going public in 2014, growing at over 25% annually through 2019 [3] - The stock has been volatile, peaking at US$350 before the rate hike cycle, subsequently losing half of those gains due to lower valuations and decreased growth [3] - Compared to peers like EPAM Systems and Endava, Globant has performed better, as those competitors have experienced revenue and earnings declines [3] AI Impact - The advent of generative AI has led to a decline in new business for IT consulting firms, with companies reassessing their technology strategies and budgets [5] - Globant claims that AI has significantly improved coding and software engineering productivity, potentially reducing costs and increasing delivery [5] - Despite fears of obsolescence, Globant views AI as a revenue generator, as companies will require assistance in its implementation [5] Financial Estimates - Consensus estimates from 22 analysts suggest that Globant's revenue can grow over 16% with cash margins of 16%, leading to over US$300 million in free cash flow by 2025 [6] - Revenue growth is expected to dip from 21% in Q1 2024 to 11% by Q4 2024, before rebounding to a 16% growth rate in 2025 [7] Financial Summary - Revenue projections: - 2024e: US$2.427 billion - 2025e: US$2.818 billion - 2026e: US$3.353 billion [8] - EBITDA projections: - 2024e: US$494 million - 2025e: US$578 million - 2026e: US$688 million [8] - Net income projections: - 2024e: US$183 million - 2025e: US$229 million - 2026e: US$278 million [8] Valuation - The consensus price target for Globant is US$218, implying a P/CE of 24x and a PEG of 1.7x [10] - A year-end 2025 price target of US$283 is calculated using a PEG of 1.5x based on cash earnings growth [10] Peer Comparison - Globant's market cap is US$8.056 billion, with a price target of US$217, indicating a 17% upside [13] - Compared to larger peers like Accenture and IBM, Globant is seen as a higher-growth company despite the market's perception of larger firms benefiting from AI [13]