In this article, I have evaluated three leading tech stocks, Zoom Video Communications, Inc. (ZM), NetScout Systems, Inc. (NTCT), and Riot Platforms, Inc. (RIOT), to determine the better investment. Based on a fundamental comparison of these stocks, NTCT appears to be the better pick for reasons explained throughout this article.
Worldwide IT spending is projected to total $4.7 trillion in 2023, an increase of 4.3% from 2022, according to the latest forecast by Gartner, Inc. (IT).
The exponential growth of global data volume is boosting the IT services industry. Moreover, with the widespread adoption of digital transformation, the demand for advanced security solutions to combat rising data threats, such as data breaches, is on the rise, fuelling growth in the market.
The United States IT services market size is estimated at $217.23 billion this year, and is expected to reach $306.10 billion by 2028, growing at a CAGR of 7.10%.
In addition, cloud computing’s capacity to enhance large enterprises, the demand for hybrid and Omni-cloud solutions, pay-as-you-go models, and the rising adoption of cloud services in developing nations to bolster digital operations are fueling the cloud industry’s growth.
As a result, the global cloud computing market is projected to experience robust growth with a 14.1% CAGR from 2023 to 2030.
Furthermore, one of the IT industry’s fastest-growing categories, the Software as a Service (SaaS) model is preferred by most companies as it facilitates scalability and allows anytime, anywhere productivity. The global SaaS market is expected to reach $720.44 billion by 2028, growing at a CAGR of 25.9%.
Considering these dynamic industry trends, let’s take a look at the fundamentals of the three Technology – Services stocks, starting with number 3. While NTCT is rated A (Strong Buy), ZM is rated B (Buy) in our proprietary system. However, RIOT’s overall F rating, suggests it could be wise to avoid the stock.
Stock #3: Riot Platforms, Inc. (RIOT)
RIOT operates as a Bitcoin mining company in North America. It operates through Bitcoin Mining; Data Center Hosting; and Engineering segments.
RIOT’s trailing-12-month gross profit margin of 11.55% is 76.3% lower than the 48.66% industry average. Its trailing-12-month EBIT margin of negative 108.28% compares to the 4.51% industry average.
In the second quarter ended June 30, 2023, RIOT reported revenues of $49.74 million. Its operating loss amounted to $32.48 million. The company’s net loss and net loss per share came in at $27.69 million and $0.17.
RIOT’s EPS is expected to decline 6.8% year-over-year to negative $0.26 during the fiscal third quarter ending September 2023. Also, it has failed to surpass EPS and revenue estimates in three of the trailing four quarters, which is disappointing.
The stock plunged 32.5% over the past month to close the last trading session at $10.28.
RIOT’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RIOT also has an F grade for Value and Stability and a D in Sentiment and Quality. It is ranked #76 out of 77 stocks in the Technology – Services industry.
Click here to see ZM’s additional POWR Ratings (Growth and Momentum).
Stock #2: Zoom Video Communications, Inc. (ZM)
ZM provides unified communications platforms in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company provides Zoom Meetings, which offers HD video, voice, chat, and content sharing through mobile phones, desktops, and laptops; Zoom Phone, an enterprise cloud phone system; and Zoom Rooms, a software-based conference room system.
ZM’s trailing 12-month net income margin of 3.17% is 56.6% higher than the 2.03% industry average. Moreover, the stock’s trailing 12-month levered FCF margin of 34.48% is 378.6% higher than the industry average of 7.20%.
On September 5, 2023, ZM announced that its generative AI digital assistant, Zoom AI Companion (formerly Zoom IQ), was now available at no extra cost to customers using paid Zoom services. This addition aligns with ZM’s mission to facilitate human connections, enhance productivity, boost skills, and improve team collaboration.
On June 27, ZM introduced the Intelligent Director for Zoom Rooms, an award-winning solution for hybrid meetings. This technology utilizes AI and multiple cameras to provide optimal angles and images of participants in Zoom Rooms, ensuring remote attendees have a clear view, even in large meeting spaces.
Intelligent Director caters to medium to larger rooms, preventing the “bowling alley effect” by framing up to 16 participants individually and selecting the best video stream via Zoom’s AI for display in Zoom Meetings. This innovation is expected to benefit Zoom’s business significantly.
ZM’s total revenues increased 3.6% year-over-year to $1.14 billion for the fiscal second quarter that ended July 31, 2023. Its non-GAAP income from operations grew 17.3% from the year-ago quarter to $461.70 million. In addition, the company’s non-GAAP net income and non-GAAP net income per share were $409.60 million and $1.34, compared to $323.50 million and $1.05, respectively.
Analysts expect ZM’s EPS to increase marginally year-over-year to $1.07 for the fiscal third quarter ending October 2023. The company’s revenue for the current quarter is expected to grow 1.6% year-over-year to $1.12 billion. Also, the company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 4.9% over the past month to close the last trading session at $69.84.
ZM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
ZM has a B grade for Value, Growth, and Quality. It is ranked #8 in the same industry.
In addition to the POWR Ratings highlighted above, you can see ZM’s ratings for Momentum, Stability, and Sentiment here.
Stock #1: NetScout Systems, Inc. (NTCT)
NTCT provides service assurance and cybersecurity solutions to protect digital business services against disruptions in the United States, Europe, Asia, and internationally.
On September 6, NTCT introduced RAN Analytics for Carrier Aggregation, a new solution that offers unique insights into carrier aggregation patterns to help mobile operators achieve superior performance and a better subscriber experience with high-speed LTE and 5G deployments.
NTCT’s trailing-12-month gross profit margin of 76.47% is 57.2% higher than the 48.66% industry average. Its trailing-12-month EBIT margin of 9.01% is 99.5% higher than the 4.51% industry average.
During the fiscal first quarter that ended June 30, 2023, NTCT’s total revenue increased 1.1% year-over-year to $211.14 million. Gross profit rose 25.8% from the previous-year quarter to $160.74 million. Non-GAAP net income increased 25.8% year-over-year to $22.71 million and non-GAAP net income per share increased 29.2% year-over-year to $0.31.
Street expects NTCT’s EPS and revenue for the fiscal year ending March 2024 increase 3.9% and marginally year-over-year to $2.27 and $922.50 million. Also, it has surpassed EPS and revenue estimates in three of the trailing four quarters.
The stock declined marginally intraday to close the last trading session at $27.52.
NTCT’s POWR Ratings reflect its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B in Growth, Sentiment, and Quality. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated NTCT for Momentum and Stability. Get all NTCT ratings here.
What To Do Next?
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ZM shares were trading at $71.47 per share on Thursday morning, up $1.63 (+2.33%). Year-to-date, ZM has gained 5.51%, versus a 18.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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|RIOT||Get Rating||Get Rating||Get Rating|
|IT||Get Rating||Get Rating||Get Rating|