FX Volatility Will Undermine Specialized Services But Spur AI

Key Takeaways

• Reliance on labor-based CX services and exposure to wage inflation, compliance costs, and regulatory complexity risk long-term margin stability and revenue growth.
  
• Investments in AI and automation support innovation, but rising digital adoption and contract headwinds may erode traditional business lines and global diversification benefits.
  
• Persistent structural, currency, and regulatory risks threaten Teleperformance's revenue and margin stability, while heavy investment demands and execution uncertainty could undermine future growth and competitiveness.

Catalysts

Operates as a digital business services company in France and internationally.

• While Teleperformance's core services are experiencing resilient like-for-like growth in EMEA and APAC, persistent structural headwinds continue in the specialized services segment due to the loss of a major government contract and muted demand for language solutions in the U.S.; this could meaningfully hinder group revenue growth and stall top-line expansion over the next few years.
  
• Although the company is proactively investing in AI and automation, the accelerating pace at which AI and digital agents are replacing human-based customer interactions may pose a longer-term threat to one of Teleperformance's most profitable business lines, risking both future revenue and net margin as the overall addressable market for labor-based CX services contracts.
  
• Despite benefiting from corporate outsourcing and expanding demand for end-to-end CX, Teleperformance faces mounting compliance costs and operational complexity due to more stringent data privacy regulations in key international markets; this could lead to sustained margin pressure and greater risk of adverse financial impacts from fines or service disruption.
  
• While there has been strong execution in ramping up new contracts in emerging markets and technology-enabled service lines, these gains are being partially offset by macroeconomic volatility, currency headwinds, and the growing trend of nearshoring and reshoring, which may erode Teleperformance's cost advantages and reduce global revenue diversification benefits over time.
  
• Even though Teleperformance highlights continued margin improvements in its core regions and investment in proprietary AI platforms, its ongoing reliance on labor arbitrage in developing economies leaves it exposed to wage inflation and operational risks, potentially undermining net margin stability and the company's ability to deliver on long-term cash flow generation targets.

Teleperformance Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Teleperformance compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Teleperformance's revenue will decrease by 0.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.7% today to 7.1% in 3 years time.
• The bearish analysts expect earnings to reach €742.7 million (and earnings per share of €12.13) by about August 2028, up from €481.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.8x on those 2028 earnings, which is the same as it is today today. This future PE is lower than the current PE for the GB Professional Services industry at 15.2x.
• Analysts expect the number of shares outstanding to decline by 1.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.88%, as per the Simply Wall St company report.

Teleperformance Future Earnings Per Share Growth

Risks

• Continued weakness and unpredictability in specialized services, particularly the nonrenewal of a major visa application contract and persistent low growth in LanguageLine Solutions, point to structural risks that could drag on group revenues and margins for several years if headwinds are not resolved.
  
• Severe foreign exchange headwinds across nearly all major markets, with a strongly appreciating euro eroding reported revenues and EBITDA margins, create ongoing volatility and downside risk for earnings and may persist if global currency trends do not reverse.
  
• Political and regulatory conditions-such as the sharp decline in U.S. demand for interpretation services amid immigration fears and changing government actions-highlight Teleperformance's exposure to policy-driven swings that could unpredictably impact both specialized services revenue and core business growth.
  
• High reliance on growth in emerging markets and labor arbitrage exposes margins to wage inflation and currency devaluation, as seen in Latin America and other regions, threatening long-term net profit sustainability if cost advantages erode faster than topline expansion.
  
• Ongoing necessity for significant investment in transformation-especially in AI, back office, and next-generation services-requires both capital and timely execution; any misstep in pace versus competition could cap growth, compress margins, and damage Teleperformance's competitive moat, affecting future earnings potential.

Valuation

• The assumed bearish price target for Teleperformance is €92.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Teleperformance's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €195.0, and the most bearish reporting a price target of just €92.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €10.5 billion, earnings will come to €742.7 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 8.9%.
• Given the current share price of €72.48, the bearish analyst price target of €92.0 is 21.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.