After falling more than 20% on Wednesday ahead of its second-quarter 2023 earnings release, shares of TDCX (TDCX 23.22%) are up 26.8% as of 2:30 p.m. EDT Thursday, according to data provided by S&P Global Market Intelligence. The rebound comes after a positive analyst note and mergers and acquisitions (M&A) speculation overshadowed weaker-than-expected second-quarter 2023 results from the digital customer experience (CX) solutions company.
On the latter, TDCX’s quarterly headline numbers technically fell short of analysts’ expectations. Revenue climbed 5.5% year over year (11.3% at constant currency) to $126.2 million, translating to adjusted (non-generally accepted accounting principles, or GAAP) net income of $21 million, or $0.15 per share. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 7.1% year over year to $32.7 million, or 25.9% as a percentage of revenue.
Analysts, on average, were expecting slightly higher adjusted earnings of $0.16 per share on revenue of $129.4 million.
TDCX founder and CEO Laurent Junique lauded the company’s “resilience amid an uncertain macroeconomic environment,” noting that the company managed to increase its revenue from clients outside its top five by 67% year over year. Revenue from TDCX’s top five clients still comprised 73% of its total top line, down from 83% in the same year-ago period.
So why, then, did shares of TDCX rally today?
First, Junique also stated that the company continues “to explore M&A opportunities that could help enhance our capabilities or reach to better serve our clients or to accelerate our growth.” That could mean the company is seeking complementary bolt-on acquisitions for its own business. But it also predictably spurred speculation that TDCX might be open to being acquired itself.
Second, noting shares sold off more than 20% yesterday ahead of this release, early this morning, HSBC analyst Shuo Han Tan upgraded TDCX stock from hold to buy. Arguing the stock’s sell-off was overdone and with shares closing yesterday at $4.93, Tan also lowered the firm’s per-share price target on TDCX from $8.50 to $6.00.
“We are at an exciting point in the CX industry,” Junique stated in the company’s earnings press release. “Technological advancements, including in generative artificial intelligence (AI), pave the way for us to provide faster, better and more efficient ways of delivering customer satisfaction.”
Still, for the full-year 2023, TDCX lowered its outlook to call for revenue growth of 2% to 4% on a constant-currency basis (down from 3% to 8%), with an adjusted EBITDA margin of 25% to 27% (down from 25% to 29%).
With growth appearing to stabilize and with shares of TDCX still down more than 50% year to date, even after today’s rebound, HSBC might be correct in asserting the stock’s sell-off is overdone. Coupled with yesterday’s pre-earnings plunge and speculation that it could be open to an acquisition, it’s hardly surprising to see the stock bouncing back today.
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.