The tech sector was among the hardest hits last year as the Federal Reserve undertook aggressive interest rate hikes to curb record-high inflation. However, the sector has staged a remarkable comeback this year as inflation continues to ease, and the Fed contemplates pausing rate hikes.
The tech-heavy Nasdaq Composite has outperformed the S&P 500 and the Dow Jones Industrial Average, rising 31.1% year-to-date. In this piece, I have compared popular tech names Uber Technologies, Inc. (UBER) and Zoom Video Communications, Inc. (ZM) to determine the better value buy.
UBER missed the consensus revenue estimates in the second quarter by $0.10 billion. However, it reported an EPS of $0.18, compared to the Street estimates of a loss per share of $0.01. During the quarter, the company achieved its first GAAP operating profit, and its free cash flow was over $1 billion for the first time in a quarter.
UBER’s CEO, Dara Khosrowshahi, said, “Robust demand, new growth initiatives, and continued cost discipline resulted in an excellent quarter, with trips up 22% and a GAAP operating profit, for the first time in Uber’s history. These results also translated into strong driver and courier engagement, with 6 million drivers and couriers earning a record $15.1 billion during the quarter.”
For the third quarter, UBER forecasted its gross bookings between $34 billion and $35 billion. Its adjusted EBITDA is expected to be between $975 million and $1.025 billion.
Meanwhile, ZM comfortably beat EPS and revenue estimates during the first quarter. Its EPS was 16.6% above the consensus estimate, while its revenue beat analyst estimates by 1.9%. The number of customers contributing more than $100,000 in trailing-12-months revenue rose 23% year-over-year.
ZM Founder and CEO Eric S. Yuan said, “Our customers see Zoom as mission-critical in how they collaborate internally and externally across the globe. This relationship with our customers helped us to exceed our guidance due to Enterprise growth and stabilizing Online revenue while driving greater efficiencies in our business to deliver strong profitability and free cash flow margin.”
“The solid start to the year has enabled us to raise our outlook for fiscal year 2024 while continuing to invest in innovations such as AI to help make interactions more meaningful and communications more effective,” he added.
ZM forecasted its total revenue for the second quarter between $1.110 billion and $1.115 billion. Its non-GAAP income from operations is expected to be between $405 million and $410 million, while its non-GAAP EPS is expected to be between $1.04 and $1.06. For fiscal 2024, total revenue is forecasted between $4.465 billion and $4.485 billion.
The company’s non-GAAP income from operations is expected to be between $1.630 billion and $1.650 billion, while its non-GAAP EPS is expected to be between $4.25 and $4.31.
When it comes to price performance, UBER performed better than ZM. UBER’s stock has gained 78.4% year-to-date compared to ZM’s 1.8% decline. Similarly, UBER’s stock has gained 42% over the past year compared to ZM’s 36.8% decline.
However, here are the reasons I think ZM can perform better in the near term:
Recent Financial Results
UBER’s Monthly Active Platform Consumers (MAPCs) for the second quarter ended June 30, 2023, rose 12% year-over-year to 137 million. Its gross bookings increased 16% year-over-year to $33.60 billion. The company’s revenue rose 14% over the prior-year quarter to $9.23 billion. Its adjusted EBITDA increased 152% year-over-year to $916 million.
In addition, its net cash provided by operating activities increased 171% year-over-year to $1.19 billion. Also, its net income attributable to UBER came in at $394 million, compared to a net loss attributable to UBER of $2.60 billion.
For the fiscal first quarter ended April 30, 2023, ZM’s revenue rose 2.9% year-over-year to $1.10 billion. Its non-GAAP income from operations increased 5.7% over the prior-year quarter to $422.32 million. The company’s non-GAAP net income increased 11.9% year-over-year to $353.25 million. Its non-GAAP EPS came in at $1.16, representing an increase of 12.6% year-over-year.
Expected Financial Performance
Analysts expect UBER’s EPS for fiscal 2023 and 2024 to increase 108.2% and 176.2% year-over-year to $0.38 and $1.04. Its fiscal 2023 and 2024 revenue is expected to increase 17.9% and 16.7% year-over-year to $37.58 billion and $43.85 billion.
ZM’s EPS for fiscal 2024 is expected to decline 1% year-over-year to $4.33. Its revenue for fiscal 2024 is expected to increase 2.1% year-over-year to $4.48 billion. Its EPS and revenue for fiscal 2025 are expected to increase 1.5% and 4.7% year-over-year to $4.39 and $4.70 billion, respectively.
Profitability
UBER’s trailing-12-month revenue is 7.9 times what ZM generates. However, ZM’s gross profit margin and EBITDA margin of 75.08% and 3.60%, compared to UBER’s 32.06% and 0.83%. ZM’s net income margin and Return on Equity of 0.12% and 0.09% compare to UBER’s negative 1.07% and 4.22%, respectively. On the other hand, UBER’s asset turnover of 1.08x compares to ZM’s 0.54x.
Valuation
In terms of forward EV/EBITDA, UBER is currently trading at 25.34x, 203.5% higher than ZM’s 8.35x. On the other hand, ZM’s trailing-12-month Price/Book ratio of 3.08x is 71% lower than UBER’s 10.63x.
Thus, ZM is relatively more affordable.
POWR Ratings
UBER has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, ZM has an overall rating of B, translating to a Buy. 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. UBER and ZM have an A and B grade for Quality, respectively, in sync with their higher profitability.
ZM has a B grade for Value, consistent with its discounted valuation. On the other hand, UBER has a D grade for Value, in sync with its stretched valuation.
Of the 78 stocks in the Technology - Services industry, UBER is ranked #20, while ZM is ranked #18 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view UBER’s ratings. Get all the ratings of ZM here.
The Winner
UBER has grabbed investors’ attention lately as it reported its first-ever GAAP operating profit and over $1 billion free cash flow in the second quarter. It has also provided a solid growth outlook for the third quarter. However, UBER trades at an expensive valuation when compared to its peers.
On the other hand, ZM is reasonably valued. On the back of a robust first quarter, the company raised its outlook for fiscal 2024.
While there is little to choose between the two stocks on the financial, consensus estimate, and profitability fronts, ZM could be a better buy than UBER, given its reasonable valuation.
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.
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UBER shares were trading at $44.96 per share on Thursday morning, up $0.85 (+1.93%). Year-to-date, UBER has gained 81.80%, versus a 18.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
Zoom Video Communications (ZM) vs. Uber Technologies (UBER): Which Tech Stock Is the Better Value Buy? StockNews.com
