In this article, I have evaluated prominent stocks, Zoom Video Communications, Inc. (ZM) and Uber Technologies, Inc. (UBER), to determine which tech stock has a stronger gameplan. After thoroughly evaluating these stocks, I think while ZM could be a solid buy, waiting for a better entry point for UBER could be ideal for the reasons discussed in this article.
Firms focusing more on digital with access to advanced technologies for driving growth while decreasing cost, growing usage of cloud technologies, and using business intelligence to earn increased revenues are fueling growth in the IT market.
Therefore, the United States IT Services market is expected to grow at a CAGR of 6.5% until 2028.
Another key trend in the US software market is the increasing adoption of artificial intelligence (AI) and machine learning (ML) technologies. These technologies are being used to automate a wide range of business processes, from customer service to supply chain management.
Amid robust tech demand and steady prospects of the industry, both ZM and UBER should benefit.
While ZM has gained 12.5% over the past month as compared to UBER’s 12.9% gain. ZM also gained 8.4% over the past six months compared to UBER’s 44.4% gain.
However, here are the reasons why I think ZM might perform better in the near term:
Recent Developments
On December 6, 2023, ZM announced enhancements across its AI-powered customer experience (CX) suite and new pricing plans that are expected to be available in the coming weeks.
Conversely, on December 19, 2023, UBER announced it had integrated with leading expense management providers Brex and Ramp. The integrations would automate receipt matching for Uber rides and meals, which rank among the most-expensed items for employees. This would help companies of all sizes simplify expenses and save time on and off the road.
Recent Financial Results
For the fiscal third quarter ended October 31, 2023, ZM’s revenue rose 3.2% year-over-year to $1.14 billion. Its non-GAAP income from operations increased 154.7% over the prior-year quarter to $461.68 million. The company’s non-GAAP net income increased 24.2% year-over-year to $401.24 million. Its non-GAAP EPS came in at $0.45, representing an increase of 181.3% year-over-year.
On the contrary, for the third quarter ended September 30, 2023, UBER’s revenue increased 11.4% year-over-year to $9.29 billion. Also, its net income attributable to UBER came in at $221 million, compared to a net loss of $1.21 billion for the same quarter. Its EPS came in at $0.10 as compared to loss per share of $0.61 for the same quarter. However, its total costs and expenses increased marginally year-over-year to $8.90 million.
Past And Expected Financial Performance
ZM’s revenue has increased at a CAGR of 32% over the past three years. Its revenue is expected to increase 2.7% in the year ending January 2024 and 1.1% in the fourth quarter ending January 2024. Its EPS is expected to be $4.95 in the year ending 2024, $1.15 in the current quarter ending January 2024, and $1.13 in the next quarter ending April 2024.
Conversely, UBER’s revenue has increased at a CAGR of 48.9% over the past three years. Its revenue is expected to increase 16.5% this year and 13.5% in the fourth quarter ending December 2023 and 13.1% in the next quarter ending March 2024. Its EPS is expected to gain $0.38 this year, $0.16 in the current quarter ending December 2023 and $0.21 in the next quarter ending March 2024.
Valuation
ZM’s forward EV/EBITDA multiple of 8.45 is lower than UBER’s 32.94. ZM’s forward non-GAAP P/E multiple of 14.66x is lower than UBER’s 46.97x.
Thus, ZM is more affordable.
Profitability
ZM's trailing-12-month gross profit margin of 75.80% is higher than UBER’s 32.41%. In addition, ZM’s trailing-12-month EBIT margin of 7.83% is higher than UBER’s 0.88%.
Thus, ZM is more profitable.
POWR Ratings
ZM has an overall rating of B, translating to a Buy, in our proprietary POWR Ratings system. Conversely, UBER has an overall rating of C, which equates to a Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ZM has a B grade in Value. Its forward non-GAAP P/E of 14.91x is 40.8% lower than the industry average of 25.16x. Its forward EV/EBITDA multiple of 8.66 is 47.1% lower than the industry average of 16.38.
In contrast, UBER has a D grade for Value. UBER’s forward non-GAAP P/E of 48.16x is 147.2% higher than the industry average of 19.49x. Its forward EV/EBITDA multiple of 9.28 is 32.5% higher than the industry average of 13.75.
Among the 76 stocks in the B-rated Technology - Services industry, ZM is ranked #13, while UBER is ranked #49.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Sentiment Momentum, Growth, and Quality. Get all ZM ratings here. Click here to view UBER ratings.
The Winner
The demand for software in the United States has been robust in recent years, driven by various factors such as the increasing adoption of cloud computing, the rise of mobile devices, and the growing data analytics market. Industry players such as ZM and UBER are well-positioned to benefit from these industry tailwinds.
However, ZM's higher profitability and lower valuation makes it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology - Services industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ZM shares were trading at $73.26 per share on Thursday afternoon, down $0.47 (-0.64%). Year-to-date, ZM has gained 8.15%, versus a 26.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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