{ "docId": "019dd923-622c-750b-8b98-5f0124239c3a", "docSlug": "80f82c26a432", "documentTitle": "Globant SA (GLOB)", "authorId": "54_Spruce_Point_Capital", "authorName": null, "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2018-04-04 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 5, "pageCount": 40, "prevPage": 4, "nextPage": 6, "slideType": "executive_summary", "function": "diagnose_problem", "density": "overcrowded", "nDataPoints": 12, "notes": "The slide uses a list-based structure to present four distinct arguments for a short thesis.", "elementsJson": [ "headline_text", "bullet_list" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-5f0124239c3a/5", "deckHref": "/decks/019dd923-622c-750b-8b98-5f0124239c3a", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-5f0124239c3a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-5f0124239c3a#slide-5", "components": [ { "bbox": null, "kind": "callout", "text": "Our simple regression analysis linking valuation to organic growth rate among IT outsourcing peers suggests 40% to 50% downside (approximately $24.50 to $29.50 per share)", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-14d8-75c0-8c84-039248ed32ce", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.92, "x": 0.05, "y": 0.18 }, "kind": "list", "text": "Corporate Strategy Initiatives Are Not Showing Signs of Progress: In 2016, Globant introduced a new company wide model called 50-Squared. The main goal of 50-squared is to focus Globant's team on the top 50 highest potential accounts that have the capacity to grow exponentially over time. We took a close look at its top 5 clients. Four of its top clients (excluding its top client, Disney) only grew by an average of 2% in 2017. We don't see evidence that this strategy is gaining acceptance with its most important clients.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bb252590-475d-4db1-8b68-bac345136ba5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.92, "x": 0.05, "y": 0.89 }, "kind": "list", "text": "Analysts See 10% Upside, A Terrible Risk/Reward Given Our 40% - 50% Downside Estimate: GLOB is trading at peak valuation on the belief that it can maintain 20%+ organic revenue growth. Management continues to embrace the \"organic\" growth story while not sharing with investors the underlying contributors to growth that would reveal its slowing profile. GLOB does not lead its peer group in any key metrics that warrant its industry leading valuation (e.g. organic growth, EBITDA margin, FCF conversion, employee retention, or client diversification). Yet, the Street is valuing GLOB at 3.4x, 19.7x and 31.0x 2018E sales, EBITDA, P/E, respectively. Furthermore, analysts ignore obvious accounting and financial presentation issues that would give any prudent investor pause for concern. Once investors realize that GLOB's organic growth rate is slowing, we believe investors will recalibrate GLOB's valuation in-line with industry peers. Our simple regression analysis linking valuation to organic growth rate among IT outsourcing peers suggests 40% to 50% downside (approximately $24.50 to $29.50 per share)", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e19b5d1a-7b7f-4d30-ba53-5409cbba1e15", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.92, "x": 0.05, "y": 0.66 }, "kind": "list", "text": "Corporate Governance Should Be Questioned: Globant has not maintained an independent board since its IPO. Given Globant's status as a foreign private issuer, it is able to adhere to different corporate governance standards. Globant has chosen home country status of Luxembourg, and must adhere to its corporate laws. There is no legal requirement under Luxembourg law to have a majority of independent directors. Although, Globant states that its board is \"currently\" independent. We analyzed the board independence over the last three years since its IPO. The Board was not independent at the time of its IPO. Furthermore, in both 2016 and 2017, the majority \"independent\" status was achieved by a single board member, Francisco Alvarez-Demalde (founder of Riverwood). Mr. Demalde at the time of its IPO represented Globant's second largest shareholder (Riverwood). Although, this former major shareholder may not need a \"cooling off\" period to be considered independent, we question why Globant would choose to achieve an independent Board in this manner. Also, its latest addition to the board, Linda Rotternburg (Endeavor), was also a pre and post IPO shareholder.", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f04b286e-60b9-473c-aae0-da33110ce33d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.28, "w": 0.92, "x": 0.05, "y": 0.37 }, "kind": "list", "text": "Insiders Selling Is Staggering: Insiders have sold (or transferred) over 70% (+$80m) of shares since Globant's IPO in July of 2014. We think investors may be unaware of the magnitude of selling by Globant's founders and other insiders. Globant's status as a foreign private issuer allows it an exemption from reporting the customary insider disclosure via Form 4s to the SEC. Globant chooses to file paper forms with the SEC via Form 144s. Ironically, since the Luxembourg dual listing in August of 2016, Globant now files insider selling transactions electronically with the Luxembourg stock exchange. We find it peculiar that Globant now files insider selling transactions electronically with the Luxembourg exchange and does not follow that same protocol with the SEC. Further, the four founders all set up both revocable and irrevocable trusts. All four founders in aggregate transferred over 3.0m shares (~$40m and ~10.4% of total share count) to irrevocable trusts at some point between August 2014 and January 2015. We believe that this transfer was done quietly with the potential motivation to allow for further insider selling", "attrs": null, "subkind": "bullet", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f85477b4-a981-48f2-b152-9815ada3adb3", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "downside: 40% - 50%", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-14d8-75c0-8c84-04025f808b71", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.65, "x": 0.32, "y": 0.05 }, "kind": "title", "text": "Spruce Point Has Established A Short Position In Globant (NYSE: GLOB), Sees 40% - 50% Downside For The Following Reasons", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8a959e75-8210-45e0-ac34-686c0ea5f02d", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "List presentation", "slug": "list-presentation", "agent": null, "layer": "slide", "matchId": "8ae90a20-d66e-4ed4-954a-37fd58ab4594", "evidence": "The slide uses a list/bullet format to present several reasons for the short position.", "confidence": 0.7 }, { "name": "Thesis archetype", "slug": "thesis-archetype", "agent": null, "layer": "slide", "matchId": "160a3e13-05ed-46b3-814d-6cac0a0c172e", "evidence": "The slide presents a clear thesis statement: 'Spruce Point Has Established A Short Position In Globant (NYSE: GLOB), Sees 40% - 50% Downside For The Following Reasons'.", "confidence": 0.7 } ], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }