Editor’s note: This column is part of our Best Stocks for 2016 contest. Jon Markman’s pick for the contest is Globant SA (GLOB).
A decade ago, you could count the number of computers in your home. Probably one, a desktop. Or two, if you also had a laptop.
Fast forward to the present and it would probably take you a while to mentally count them all…You’ve probably got a few desktop PCs if you have children and a spouse, and each of them has a smartphone and a laptop, and some might have tablets. Plus you might have a smart alarm system or a digital entertainment system in your car.
You get the idea. Lots of computers, but still countable.
But how about a few years from now, when everything you own is “smart” in some way as the cost of sensors and chips plunge and the connectivity between them multiplies? Your intelligent toothbrush, refrigerator, television, car, thermostat, front door, running shoes, skis, and liquor cabinet suddenly might not seem smart any more, but kind of normal.
This is a world that we are racing headlong toward. It’s a world in which every tangible thing and every single person will be enmeshed in an immersive web of dynamic intelligence that will yield stunning productivity, environmental, medical, entertainment and human benefits. And it is a world that most big businesses, quite frankly, are not ready for.
In my view, the value of this new world lies not in the things — i.e. the sensors or connectivity devices — but in the services that will be layered on top of them to allow us to navigate the physical and online worlds with less friction and more joy.
This is a big opportunity knocking, and one that a $1.2 billion technology and marketing services provider named Globant SA (GLOB) addresses quite uniquely.
Globant was founded in Buenos Aires in 2003 by current chief executive Martin Migoya and three friends. Its goal originally was to create innovative software products for Latin American customers. Over the next five years, the company rapidly grew into a multinational corporation with offices all over the world. Today, GLOB has more than 4,500 professionals in nine countries working with clients like Alphabet (GOOG, GOOGL), LinkedIn (LNKD), Electronic Arts (EA), Disney (DIS) and Coca Cola (KO) to develop and deliver on the promise of the coming Internet of Things revolution.
Globant observes that most of its competitors fall into one of two categories:
— The first one is traditional IT services providers who chiefly focus on optimizing corporate processes and products. These are companies like Oracle (ORCL) and SAP (SAP).
— The second consists of digital agencies that focus on creativity, but lack the engineering expertise or ability to scale. This segment is full of smaller firms like Razorfish, 360i, and Acxiom Corp (ACXM).
Globant in contrast prides itself on being able to master both ends of the spectrum, providing engineering, design, and innovation capabilities that focus on the emerging technologies and trends to meet needs, in many cases, that their clients didn’t even know they would have a couple of years ago.
Over the last decade, social media, cloud computing, software as a service, and internet mobility have all become disruptive technologies that have invaded nearly every aspect of our personal and business lives. Globant believes that as enterprises attempt to adapt their business models to benefit from these emerging technologies, they will seek solutions that meet the obvious engineering requirements but that also engage the end user in new and powerful ways.
Every industry is facing this shift, including telecom, healthcare, banking, retail, and travel. As a result, the company is courted by customers that range the gamut, from Southwest Airlines (LUV) to National Geographic and American Express (AXP). Every business suddenly recognizes that it needs to rush to adapt to the Internet of Things revolution and does not have in-house capability to do so.
Globant has a very unique approach to staying ahead of the curve but in the business mainstream. It has developed 12 creative studios that each focus on a specific solution. Consumer Experience, Wearables and IoT, Gaming, Enterprise, and Digital Content are examples. Each studio is staffed by IT professionals who are experts in these fields.
Globant then deploys a cross-functional and multidisciplinary team that it has termed an “Agile Pod” to each client. Because every company’s needs are unique, no two teams may look the same, while each solution is completely personalized.
Traditional IT services is expected to grow at less than 5% annually through 2017, while according to Gartner Research, emerging technologies growth will exceed 25% each year. Globant has estimated its addressable market at more than $300 billion annually, which includes the digital budgets of the Fortune 500.
Since inception, the firm’s growth has been primarily organic, but in the last few years Globant has made some key strategic acquisitions. The strategy has been to focus on acquiring companies that help deepen relationships with key clients and extend technology capabilities, all while broadening its service offering and geographic footprint.
Over the last three years, the company has experienced 30%-plus annual revenue growth, leading to 52% net income growth each year, as its increasing size has helped improve gross margins. You would expect to pay a hefty premium for a high growth company like GLOB, especially considering the stock price has risen about 140% in the past year alone. Yet the company is trading at about 39x earnings. While not cheap, it’s reasonable for best-in-class growth company.
These new-breed technology services providers like Globant will only see demand for their solutions increase over time. Even if economic growth slows over the next year, I think that companies are going to find budget to make sure that they are creating experiences for their customers that take advantage of the Internet of Things revolution.
Globant is a pure play on this idea, but also gives us exposure to the future of mobile gaming, cloud computing, digital wearables, big data, digital content and more.
Opportunities like that are rare, which is what makes Globant so intriguing. It’s my 2016 pick of the year.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.