Bloomberg Línea — Martín Migoya, CEO and co-founder of Globant (GLOB), does not shy away from difficult questions: Why haven’t his company’s shares benefited from the tech stock rally this year, despite revenue growth? Migoya attributes this discrepancy to a market that continues to punish the B2B tech sector as a whole, without distinguishing specific opportunities for companies like Globant.
The current stock price doesn’t reflect the true potential of the company, he claims, especially as the world is on the brink of a technological revolution driven by artificial intelligence.
“Globant [stock] today is worth the same as it was in 2021, despite being three times larger [as a company],” says Migoya, who believes that the company’s real value will become evident as AI drives the next big wave of transformations across all industries.
Regarding the situation in Argentina, Migoya is optimistic about Javier Milei’s government. The fiscal discipline and structural reforms implemented so far are clear signs of a profound change that could stabilize the economy and attract investment, he comments.
The adjustment of public spending, the reduction of inflation, and the expansion of private credit represent a unique opportunity for the growth of the Argentine economy, Migoya argues.
The CEO traveled to Miami for the 2024 COA Symposium and the 29th BRAVO Business Awards, where Globant was honored as “the Company of the Decade in Latin America.”
The following conversation has been edited for length and clarity.
It’s been a great year for both tech stocks and Argentine ADRs. I know you have a highly diversified revenue pool worldwide, not just in the region, but your company was born in Argentina. Why hasn’t Globant’s stock price risen along with these gains, given that it’s down 5% in 2024? How do you interpret this market view?
Let’s see, Globant has been disconnected from what’s happening in Argentina for many years now, because Argentina represents only 15% of our resources and less than 5% of our revenue. So, Globant, despite being a company born in Argentina, is very connected to what’s happening first in the sector and second in the world. And the sector has been one that, in 2023, suffered a lot in terms of growth. I mean, Globant is the company that’s growing 15 times more than our competitors, or the closest average, and we’re growing at 15%. But, unfortunately—and I honestly always fight against this—many times stocks move like herds, right? When companies, or when the sector doesn’t perform, it doesn’t matter that you perform, and your stock is also punished. So, I think it has to do with that. There’s a lot of upside in Globant’s stock. We’re at a similar price to what we had in 2021, with a company that’s three times larger, facing a technological change ahead of us that’s going to be massive. There’s not a single company in the world that can avoid going through a transformation process based on artificial intelligence, just like it was the transformation process based on smartphones and everything that was digital transformation. Well, now everyone has to go through this. The question is, well, when will it arrive? And the glue for all that to happen between the hyperscalers and companies are companies like Globant, which can connect and understand the need for information. So, for us, demand will keep growing; it will change in form, but it will keep growing. Globant’s growth potential is very large, and that, to me, today is not reflected in the stock.
I was reviewing your latest earnings, and in the first half, your net profit grew 14% year-on-year, and your revenue increased by 20%. Are investors missing that upside potential?
I think investors who invest in specific companies understand this, but trading volumes and stock purchase volumes move by sector. So, there were a lot of people leaving the sector and now people are starting to re-enter. So, I think we’re still at a fairly early stage of that process. And yes, Globant, as you described, 14%; that’s on the top line. And well, the truth is the opportunity is enormous. There were also other factors like exchange rates going against us throughout 2023, across all of Latin America. That also slightly affected the margins. But beyond that, a very solid performance, all our top clients are becoming more relevant to our accounts every day, expanding our offerings.
In recent years, some analysts have said that Globant grows through acquisitions rather than organic growth. How do you respond to those criticisms?
They’re analyzing it wrong. Very wrong. Globant’s growth has always been organic. Only three years were due to acquisitions. The acquisitions we make are to expand our capabilities, geographies, with capabilities we didn’t have before. Our mission is always to be close to our clients and, around that, to create a comprehensive offering. So, when people see us buying companies, it’s because we’re trying to create that comprehensive offering with capabilities we didn’t have before. But the rationale behind any Globant acquisition, at the moment we make them, is to immediately understand how to sell the other things that company didn’t have and sell to all the 1,500 clients we have. That’s the dynamic that’s always behind our growth. But this leads to predominantly the same acquisitions generating organic growth. Because it’s about selling what you didn’t have to a bunch of clients you weren’t selling to. So, to all those analysts, I tell them to review their papers because it’s not how we think about it.
Will artificial intelligence be the major revenue star for Globant going forward?
I think so. It already represents an important part of this year’s growth. Corporations have a time between understanding the problem, how to use it, and actually using it. That makes AI projects exploratory today. The things around AI are very impressive for demos, very impressive for social media. Then, when you have to bring it into the high class and ensure it doesn’t hallucinate and is contained, etc., the projects really get a bit more complicated. But that’s fine, it’s logical that it’s like that. It’s a very powerful technology. But, well, you need a lot of contextual information to be able to feed it. And if that contextual information isn’t correct, it’s very difficult for a Large Language Model or any AI system to work, or to work well. Throughout the entire process of being able to transform companies and make that contextual information available is where we believe Globant is going to have great development. We’re creating, for each of the industries we work in, an AI Reinvention Studio, which involves having [solutions] case by case, area by area of all those industries where artificial intelligence can affect our clients’ business. And proactively presenting it to our clients to see how to develop those projects.
How is the demand for these solutions today? Is there reluctance regarding the costs of investing and transforming systems with AI?
Well, investments in AI are starting to come in. Budgets in companies are starting to appear. What’s also interesting to understand is that many companies are still trying to have connectivity with their users in the typical digital transformation. Those projects aren’t over yet and continue to develop. There have been very important projects in the airline area, in the financial sector, etc. The good news is that many of these new ways of interacting have to include artificial intelligence because it’s the way people now expect companies to respond, basically. That makes the advancement of digital transformations affected by artificial intelligence, over pure artificial intelligence projects, open up a panorama because all these projects didn’t exist before. That’s the basis of the demand. And, as always, any productivity gains that have occurred in the past have been offset by the increased ambition of companies and the things they want to do. In that net effect, which no one knows yet what it will be, I consider it will be very positive. The demand in that specific area will continue to expand.
Interest rates are starting to drop in the United States and in Latin America. Do you think this could boost companies’ budgets going into 2025 and beyond?
Interest rates are important. They will definitely push budgets. But you also have to understand that there’s a cycle, which maybe sometimes is harder to understand. During the last part of 2020, all of 2021, and part of 2022, there were huge investments in technology. That represented global growth at that time. In those technology investments during the last part of 2022 and 2023, companies started saying, well, now we have to make this yield. So, in a way, it decreased [investment], but with all these new technologies we’re seeing, it’s starting to rise again. It seems to me that this cycle is more relevant than the rate cycle. It coincided with the rate cycle.
Because the company became more efficient, was budget also freed up?
Of course, so it coincided with the rate cycle, but they’re not necessarily phenomena that are totally paired. And why does it coincide with the rate cycle? Because the high levels and rates of investment that were happening were because the rates were also low. So, they coincide. But for me, it’s a cyclical investment issue in companies, much more than a purely rate issue. Rates will help, but the cycle will also help.
What’s your takeaway from being a sponsor during the 2022 Qatar World Cup, and now, more recently, with Franco Colapinto in Formula 1? What does Colapinto mean to you?
Let me clarify some concepts. We are Formula 1′s technology partners. With both partnerships, we provide technologies, and they help us with branding. But we primarily provide technology. It’s the main thing in our relationship. And both cases have been very impactful for our brand. We went from being a brand with a limited range because we were a B2B company. We’re not a consumer-facing company. Particularly in Latin America, the support we gave to Colapinto was very important because suddenly everyone is talking about him. He’s a great personality. We like him. I’ve heard a phrase once: “We like to collect characters.” And Colapinto is a great character. It’s noticeable when he speaks, and it’s noticeable when he races. And I think he has done very well. In terms of branding, it has been very important. But the most satisfying thing is to see people who leave Argentina wanting to make it big in the world doing well. Supporting that process has been very important for us. It’s nothing more than what happens at Globant. It’s about continuing to watch that phenomenon and trying to see every time someone wants to do it how to help them make it happen.
You’ve shown a very bullish stance on the stabilization that Javier Milei’s government is implementing. Why is this time different? What do you respond when someone outside of Argentina asks you this question?
Well, this time it’s different because the government is doing the same thing I would do at Globant. Or the same thing you would do at home. You spend 9.50, you try to save 0.5 or spend 10? It’s the exception in the world today. When a government does that, it stops printing, understands that the reliability you’re giving to the currency is essential, stabilizes the macro, and reduces inflation, honestly, that’s good. I don’t know why, where it came from, but governments have that ability to spend more than they collect, which no other group of people has. To me, that’s the essence. Then, the second part of the essence of what’s happening with the number of structural reforms, which never happened before, neither. And we’re just scratching the surface of what it can be. They are structural reforms that sometimes go unnoticed but are extremely important for developing businesses. There’s already a new airline that has been established, there are a bunch of regulations to make things easier. So, I think the government is doing what had to be done in Argentina a long time ago, and that’s why I’m very bullish about the country’s future. It’s already being seen in the country risk, it’s being seen in the inflation numbers, in the value of Argentine companies’ shares that were extremely undervalued. And that phenomenon is going to continue. And the third leg of what’s going to happen is that many banks now have to lend money to people and understand which people can receive that money and which people will return that money. That’s playing at being a bank, and playing at being a bank expands private credit. Private credit in Argentina is super contracted, I think it’s around 3% of GDP when in Europe you have it at 50-70%, as is the case in other Latin American countries. That expansion from 3% to 30%, I don’t know, it seems much more important to me than investments that could come from outside. When you add that they’re doing their fiscal duties well, that they’re not printing money, that credit is expanding in Argentina, and reforms are being made, honestly, it’s very encouraging.
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