The surge in virtual learning and remote meetings driven by the pandemic helped video conferencing platforms thrive. However, as businesses return to the office, the demand for video conferencing in this post-pandemic world has dropped significantly.
Prominent players in this space are rolling out new features to stay relevant. The industry is also likely to remain in demand with a permanent shift towards hybrid work. The global video conferencing market is expected to grow by 1.5 percent 12.5% CAGR reach $19.73 billion by 2030.
Zoom Video Communications, Inc. (ZM) fights with Microsoft Corporation (MSFT) to gain market share. While ZM lost 18.9% over the past month, MSFT rose 6.4%. But which stock is the better buy now? let’s find out
On August 9, 2022, British multinational universal bank Barclays Bank PLC announced the use of Microsoft Teams by MSFT as its preferred collaboration platform.
This allows Barclays to better connect its workforce and enhance the data retention, search and retrieval capabilities available in Microsoft Purview to meet its needs. This should help MSFT build a long-term partnership with Barclays over the long term.
On June 23, 2022, ZM introduced the latest evolution of its communications platform with the launch of Zoom One. This new offering combines persistent chat, phone, meetings, whiteboard and more in secure and scalable packages. The company has also introduced a brand new feature for translated and multilingual subtitles. It is expected that this will experience great demand from companies in the future.
Current financial results
For the fourth quarter of fiscal 2022 ended June 30, 2022, MSFT’s total revenue increased 12.4% year over year to $51.87 billion. The company’s gross profit was $35.44 billion, up 10.2% from the same period last year. Operating income for the quarter was $20.53 billion, up 7.5% from the prior-year period.
While net income rose 1.7% year over year to $16.74 billion, earnings per share rose 2.8% to $2.23. As of June 30, 2022, the company had $13.93 billion Cash and cash equivalents.
ZM revenue for the second quarter of fiscal 2023 ended July 31, 2022 increased 7.6% year over year to $1.10 billion. The company’s gross profit was $825.85 million, an increase of 8.6% over the same period last year. Non-GAAP income from operations was $393.73 million for the quarter, down 7.3% from the prior-year period.
ZM’s non-GAAP net income was $323.49 million, down 22.1% from the prior-year period. Non-GAAP EPS was $1.05, indicating a 22.8% year-over-year decline. As of July 31, 2022, it had $937.44 million in cash and cash equivalents.
Past and expected financial performance
Over the past three years, MSFT’s EBITDA, net income, and tangible book value have grown by CAGRs of 21.6%, 22.8%, and 18.6%, respectively.
MSFT EPS is projected to grow 10% year over year for fiscal 2023 ended June 30, 2023 and 17.9% for fiscal 2024. in fiscal year 2024. EPS is expected to grow by 15.4% per year over the next five years.
Over the past three years, ZM’s EBITDA, net income and tangible book value have grown at CAGRs of 258%, 325.5% and 98.5%, respectively.
Analysts expect ZM’s earnings per share to fall 26.5% for fiscal 2023, which ends January 31, 2023, and 0.4% for fiscal 2024. EPS is expected to increase over the next five years will grow by 13.6% per year.
In terms of Forward EV/Sales, MSFT is currently trading at 8.95x, up 109.1% from ZM’s 4.28x. In terms of non-GAAP forward PEG, ZM stands at 1.56x versus MSFT at 2x.
MSFT’s trailing 12-month revenue is 46.1 times ZM’s. MSFT is also more profitable, with an EBITDA margin of 49.4% versus ZM’s 21.2%.
Additionally, MSFT’s ROE, ROA, and ROTC of 47.2%, 0.2%, and 22.2% are comparable to ZM’s 18.6%, 0.1%, and 9.8%, respectively.
While MSFT has an overall grade of B, which translates to “buy in our own.” POWR ratings System has ZM an overall grade of C, which corresponds to neutral. The POWR ratings are calculated considering 118 different factors, each optimally weighted.
MSFT and ZM have a B grade for quality, reflecting their profitability ratios that are above the industry. MSFT’s trailing 12-month net income margin of 36.7% is 763.6% above the industry average of 4.3%. ZM has a 12-month net income margin of 23.1%, which is 442.8% above the industry average of 4.3%.
MSFT has a B grade for stability, consistent with its lower volatility compared to the industry average. MSFT has a beta of 0.94. ZM’s D-grade for stability reflects its negative beta.
Of the 53 shares in the Software business industry, MSFT ranks 10th. In contrast, ZM is ranked 43rd out of 82 stocks in the ranking Technology – Services Industry.
Beyond the above, our POWR rating system rated MSFT and ZM for growth, value, sentiment and momentum. Get all MSFT ratings here. Likewise, click here to view the additional POWR ratings for ZM.
Although ZM is trying to strengthen its product portfolios, the return-to-office trend is weighing heavily on the stock. In comparison, a wide range of product offerings and wide market reach should help MSFT perform well. Additionally, MSFT is a better buy due to its higher profitability.
Our research shows that investing in stocks with an overall POWR rating of Buy or Strong Buy increases your chances of success. click here Access the top-rated stocks in the software business industry and here for those in the technology services industry.
MSFT shares traded at $265.23 per share on Monday afternoon, down $2.86 (-1.07%). Year-to-date, MSFT is down -20.62% versus a -14.60% gain in the benchmark S&P 500 over the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a particular interest in uncovering market inefficiencies. She is passionate about educating investors to succeed in the stock market. More…
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