TDCX, the Singapore-based customer experience (CX) solutions provider, has become a bit of an enigma. The company, which went public in late 2021 amidst a flurry of tech IPOs, has had a tumultuous journey on the public markets. Its share price, despite a recent rally, sits far below its IPO price, leaving many wondering if the initial optimism surrounding TDCX was misplaced. But hidden within the recent Q3 2023 earnings transcript, a subtle shift is emerging, a whisper of potential that may have gone unnoticed by most analysts.

While the headline numbers reflect a continuation of the challenging macroeconomic environment – flat revenue on a constant currency basis and a downwardly revised full-year guidance – the transcript reveals a tale of two TDCXs. On one hand, the company grapples with the cost-cutting measures of its largest clients, particularly in the digital advertising space. This segment, representing 43% of TDCX’s revenue, continues to be a drag on the company's overall performance. However, peel back this layer and a surprisingly vibrant story unfolds.

TDCX is witnessing explosive growth in its revenue from clients outside its top five, a staggering 51% year-on-year increase. This surge, driven by a rapidly expanding client base and robust performance across verticals like gaming, e-commerce, and tech, points to a fundamental strength in the underlying business. In fact, if you exclude revenue from TDCX’s top client, the remaining business would have registered a healthy double-digit growth rate in Q3. This "silent majority" of TDCX's clientele is quietly powering the company forward, laying the groundwork for a potential breakout once the digital advertising headwinds subside.

Further bolstering this hypothesis is the remarkable performance of TDCX’s new geographies. Since 2021, the company has embarked on an aggressive expansion strategy, adding nine new countries to its network. This strategic move, initially impacting margins, is now beginning to pay dividends. Revenue from these new geographies has grown fivefold compared to the same period last year, showcasing the effectiveness of TDCX’s approach. This expansion has also enabled the company to address client demands for cost optimization by offering services from lower-cost locations.

However, the key question remains: is this surge in revenue from smaller clients and new geographies enough to offset the drag from the digital advertising behemoths? Can TDCX truly transform from a company reliant on a few large clients to a broadly diversified CX powerhouse?

The answer, as always, lies in the numbers. If we assume that TDCX’s top client represents roughly 20% of its total revenue (based on the information that excluding this client would result in low teens growth in a quarter where overall revenue was flat), the remaining business is currently growing at a rate of approximately 12.5% annually. This implies a healthy growth trajectory, even if the digital advertising sector remains muted. Further, with new clients coming on board at a rapid pace and existing clients expanding across geographies, this growth rate could potentially accelerate.

Revenue Breakdown by Vertical (Q3 2023)

Reference: TDCX Q3 2023 Earnings Transcript

Key Financial Data (as of November 21, 2023)

Reference: Seeking Alpha (ticker: TDCX)

But TDCX is not resting on its laurels. The company is actively leveraging AI to enhance its capabilities and drive future growth. While monetization of these initiatives is still in its early stages, the transcript reveals exciting use cases and a clear strategic vision. TDCX is positioning itself not just as a CX provider, but as a strategic advisor to its clients, leveraging AI to unlock greater efficiency and improve customer outcomes. This move could significantly expand TDCX’s total addressable market, opening up opportunities in the lucrative in-house CX and consulting sectors.

The narrative emerging from TDCX’s Q3 transcript is one of resilience, diversification, and strategic foresight. While the near-term outlook remains clouded by macroeconomic uncertainty, the underlying business is demonstrating robust growth and adaptability. As the company continues to broaden its client base, expand geographically, and leverage the power of AI, the whisper of potential is growing louder. The sleeping giant might just be starting to stir.

"Fun Fact: TDCX has a truly global reach, serving clients in over 30 languages from 16 locations across 11 countries. This diverse footprint allows them to cater to a wide range of client needs and tap into a vast pool of talent."