Rapid AI Advances Will Shrink Legacy Markets With Minor Upside

Key Takeaways

• Accelerating AI adoption and digital-native competition threaten Teleperformance's core business, pressuring growth and limiting margin improvement despite ongoing tech investments.
  
• Intensifying regulation, rising labor costs, and commoditized pricing are eroding profit resilience, challenging efforts to diversify and expand in high-growth markets.
  
• Advances in AI, pricing and FX pressures, legacy investments, and labor issues threaten Teleperformance's margins, competitive agility, and long-term revenue growth.

Catalysts

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

• While Teleperformance is poised to benefit from the ongoing global shift toward digital transformation and expanded business process outsourcing-underpinning potential for continued multi-year revenue growth-the rapid acceleration and enterprise adoption of advanced generative AI tools may fundamentally reduce the demand for traditional outsourced human customer support, thus threatening to structurally diminish the company's core addressable market and applying long-term pressure on top-line growth.
  
• Despite ongoing investments in AI and proprietary digital platforms intended to improve operational efficiency and support net margin expansion, there remains a significant risk that legacy investments in traditional contact center infrastructure will constrain Teleperformance's ability to pivot rapidly, allowing more agile, digital-native competitors to capture a growing share of profits in higher-margin segments, thus restraining longer-term margin improvement.
  
• Although the global rise of e-commerce, fintech, and online services is likely to drive increased complexity and interaction volume favoring large-scale providers, persistent pricing pressure from commoditization of basic customer service functions continues to erode revenue quality, and intensified competition from specialized, digital-first providers risks further limiting Teleperformance's ability to differentiate and protect profitability.
  
• While Teleperformance is leveraging geographic expansion and multilingual capabilities to access high-growth emerging markets and diversify revenue streams, rising wage inflation and tightening labor conditions in these regions threaten the labor cost advantage that has historically supported earnings, making it increasingly difficult to protect margins as operating costs rise more quickly than sales growth.
  
• In spite of strengthening data security infrastructure and strategic moves to diversify into high-value verticals such as healthcare and financial services (which could support higher revenue and margin resilience), heightened regulatory scrutiny and increasing compliance burdens globally are driving up structural costs, elevating risks of fines, and ultimately may weigh on both net margin and cash flow generation over the medium to long term.

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 grow by 1.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 5.1% today to 7.0% in 3 years time.
• The bearish analysts expect earnings to reach €750.5 million (and earnings per share of €12.26) by about July 2028, up from €523.0 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, down from 10.0x today. This future PE is lower than the current PE for the GB Professional Services industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 0.68% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.93%, as per the Simply Wall St company report.

Teleperformance Future Earnings Per Share Growth

Risks

• Rapid advances in generative AI and increasing client adoption of agentic AI could structurally shrink the addressable market for outsourced human customer support, leading to persistent downward pressure on Teleperformance's long-term revenues.
  
• Ongoing price discipline, a lost long-standing TLS contract, and commentary on tough competition in key verticals signal mounting pricing pressure and commoditization risk in core BPO businesses, which may constrain future revenues and erode company-wide margins.
  
• Continued exposure to adverse FX impacts and economic instability in key offshore markets such as Latin America, Africa, and South Asia create risks to operational efficiency and may drive volatility and downward pressure on net margin and earnings.
  
• High capital intensity and legacy investments in traditional contact center infrastructure may limit Teleperformance's agility in pursuing asset-light, technology-driven models, increasing the risk that competitors with more modern platforms outpace Teleperformance and compress its margins.
  
• Reputational risks arising from labor disputes, cost-cutting measures such as workforce reductions in France, and persistent wage inflation in developing economies could raise employee churn and operating costs, limiting improvements in earnings and potentially weighing on the group's net margins.

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 €10.8 billion, earnings will come to €750.5 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 7.9%.
• Given the current share price of €88.12, the bearish analyst price target of €92.0 is 4.2% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
• 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.