The tech industry's unique ability to not only endure but thrive amid macroeconomic volatility sets it apart. While several industries grapple with challenges during economic turbulences, the tech industry consistently showcases its innovation prowess, seizing opportunities for growth and evolution.
Given the industry’s resilient nature, this article sheds light on the fundamentals of two prominent tech companies, Zoom Video Communications, Inc. (ZM) and TaskUs, Inc. (TASK), to determine which one holds greater potential for superior returns.
Reflecting on the impacts of technology over the past few years reveals a dynamic landscape marked by unprecedented shifts and innovations. Emerging technologies, such as Artificial Intelligence (AI), blockchain, and 5G, continue to redefine possibilities and open new frontiers.
Moreover, the transformative impact of AI on our society and daily lives has been profound over the past year. Originating from beginnings like ChatGPT and Bard, AI has evolved into a driving force, making technology more intuitive, intelligent, and inclusive for everyone.
The realm of AI has transitioned from mere automation of routine tasks to a focus on augmentation, revolutionizing how people approach their work. Cognizant anticipates a notable increase in the adoption of generative AI, with up to 13% of companies integrating this technology within the next three to four years.
Furthermore, nearly half of all companies are projected to embrace this technology within the next decade. Looking ahead to 2032, the potential impact of AI on the U.S. GDP is substantial, with the technology having the capacity to contribute up to an additional $1.04 trillion in annual value.
As the AI frenzy continues to illuminate the prospects of the tech industry, both ZM and TASK are poised to benefit. In terms of price performance, ZM’s shares surged 5.7% over the past three months to close the last trading session at $68.50. Meanwhile, TASK’s shares gained 36.5% over the same period to close the last trading session at $12.20.
However, to find out which Technology - Services stock is the better pick, let’s dig deeper into the fundamentals of these stocks.
Recent Developments
On December 6, 2023, ZM unveiled improvements across its AI-driven customer experience (CX) suite and introduced new pricing plans set to roll out soon. Vi Chau, head of product, Zoom Phone and Contact Center at ZM highlighted the company's commitment to crafting meaningful customer experiences through strategic investments in advanced AI, workforce management, and omnichannel expansion.
Additionally, Chau emphasized that the introduction of new plans is designed to deliver exceptional value across all levels, offering enterprise-grade features at the base tier without additional charges commonly imposed by other companies.
On October 13, 2023, TASK officially launched its latest site, OlympUs, in Thessaloniki, Greece. OlympUs currently accommodates various on-site campaigns, with its team members specializing in financial fraud prevention, content moderation, technical support, and digital customer services.
The establishment of this new site is geared toward reinforcing TASK's established footprint in Thessaloniki, where the company has been operational for the past three years. Additionally, it serves as a testament to TASK's prioritization of a people-first culture.
Recent Financial Results
ZM’s revenue for the fiscal third quarter (ended October 31, 2023) increased 3.2% year-over-year to $1.14 billion, while its gross profit rose 4.2% from the year-ago value to $865.74 million.
The company’s net income and net income per share amounted to $141.21 million and $0.45, up 192% and 181.3% from the prior-year quarter, respectively. In addition, its income from operations improved 154.7% from the year-ago value to $169.39 million.
On the other hand, for the fiscal third quarter, which ended on September 30, 2023, TASK’s service revenue plunged 2.8% year-over-year to $225.63 million. However, its operating income rose 10.7% from the year-ago value to $22.94 million.
Meanwhile, the company’s non-GAAP net income and non-GAAP EPS amounted to $29.96 million and $0.32, down 16.3% and 8.6% from the prior-year quarter, respectively.
Past and Expected Financial Performance
ZM’s revenue has grown at a CAGR of 31.9% over the past three years. Street expects ZM’s revenue and EPS for the fiscal year (ending January 2024) to increase 2.7% and 13.2% year-over-year to $4.51 billion and $4.95, respectively.
Conversely, TASK’s revenue has improved at a 38.7% CAGR over the past three years. Analysts predict TASK’s revenue and EPS for the fiscal year (ended December 2023) to decline 4.6% and 8.5% year-over-year to $916.56 million and $1.27, respectively.
Profitability
ZM’s trailing-12-month cash per share of $4.91 is higher than TASK’s $1.27. Likewise, ZM’s trailing-12-month gross profit margin of 75.80% is higher than TASK’s 42.14%. Furthermore, ZM’s trailing-12-month levered FCF margin of 36.08% is higher than TASK’s 14.33%.
Thus, ZM is more profitable.
Valuation
In terms of the forward non-GAAP PEG multiple, TASK’s 9.83x is significantly higher than ZM’s 0.32x. Likewise, TASK’s forward EV/EBIT ratio of 15.72x is 91.5% higher than ZM’s 8.21x. Thus, ZM is more affordable.
POWR Ratings
ZM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, TASK has an overall rating of C, translating to 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 for Growth, justified by its solid year-over-year increases in its last reported quarter. Conversely, TASK’s C grade for Growth is consistent with its mixed financials in the third quarter.
Furthermore, ZM has a B grade for Quality in sync with its robust profitability metrics. ZM’s trailing-12-month levered FCF margin of 36.08% is 317.2% higher than the industry average of 8.65%.
Likewise, TASK’s B grade for quality is justified by its solid profitability metrics. The stock’s trailing-12-month levered FCF margin of 14.33% is 139.6% higher than the industry average of 5.98%.
Among the 77 stocks in the Technology - Services industry, ZM is ranked #15, while TASK is ranked #32.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Stability, and Sentiment. Click here to view ZM ratings. Get all TASK ratings here.
The Winner
In light of the tech industry's promising future marked by groundbreaking innovations, both ZM and TASK are poised for potential gains. However, ZM's robust financial standing, optimistic analyst projections, enhanced profitability, and a more appealing valuation may position it as a preferred investment candidate compared to TASK.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Technology - Services industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
ZM shares were trading at $70.95 per share on Friday morning, up $2.45 (+3.58%). Year-to-date, ZM has declined -1.34%, versus a 0.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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