The tech sector appears poised for continual growth, driven by the accelerated digitization of business operations and an increased reliance on advanced technologies. The demand for tech-based solutions has been rising at a steady pace.
Enterprises are engaging in extensive digital transformation initiatives. This trend is projected to gather speed as the implementation of hybrid working systems becomes increasingly common. The information technology market is projected to grow at a 7.9% CAGR and reach $12 trillion in 2027. However, this promising trajectory has not been uniform across all tech firms.
Tech giant Uber Technologies, Inc. (UBER), boasting a market cap of over $86 billion, specializes in developing technological applications and transportation solutions. Despite rewarding investors significantly on several occasions since its IPO in 2019, the consistency of its stock performance remains somewhat erratic.
Currently having a stretched valuation and trading beneath its original IPO price and 50- and 100-day moving averages, UBER could be a risky investment now.
On the other hand, tech stocks Box, Inc. (BOX), GigaCloud Technology Inc. (GCT), and LiveRamp Holdings, Inc. (RAMP) present more attractive investment opportunities than UBER for reasons elucidated throughout this article.
UBER's gross bookings fell 11% in 2020 due to the pandemic-induced disruption of its primary business, ride-hailing services. However, its swift transition toward food delivery through Uber Eats saw its gross bookings more than double during lockdown periods when the population was predominantly homebound. Consequently, when pandemic restrictions eased, UBER’s gross bookings rose 28% in 2022.
However, within the last year, its year-over-year monthly active platform consumers (MAPCs), total trips, and gross bookings growth metrics decelerated. This could stem from challenging comparisons to its post-pandemic resurgence, intense competition in both ride-sharing and meal delivery sectors, and broader economic obstacles impacting its lesser-known freight unit. Also, as of June 30, 2023, UBER's accumulated deficit was $32.53 billion.
It is worth noting that UBER insiders sold company shares 275 times more frequently than they purchased. While this high rate of insider selling does not necessarily denote underlying issues with the firm, it is somewhat concerning that even with improved margins and discount prices relative to the IPO value, insiders did not opt to acquire more stock over the past 12 months.
In addition, UBER's stock currently sits at a higher price bracket than the industry players, evident from the forward non-GAAP P/E of 34.12x, which is 105.7% higher than the industry average of 16.59x. Also, its forward EV/EBIT multiple of 120.10 is 730.6% higher than the industry average of 14.46.
It's not all grim news for the company. For the fiscal second quarter that ended June 30, 2023, UBER’s revenue increased 14.3% year-over-year to $9.23 billion. Net income attributable to UBER stood at $394 million, compared to a net loss of 2.60 billion in the prior year quarter, while net income per share attributable to UBER’s common stockholders came in at $0.18, compared to a loss per share of $1.33 in the previous year’s quarter.
Let's delve into the fundamentals of the three alternatives in the Technology - Services industry, beginning with the third choice.
Stock #3: Box, Inc. (BOX)
BOX provides a cloud content management platform that enables organizations of various sizes to manage and share their content from anywhere on any device. Its Software-as-a-Service platform allows users to collaborate on content, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features.
On October 11, BOX unveiled Box Hubs to make it easier than ever to securely curate and publish content across the enterprise, deeply integrated by Box AI. This would help customers find answers to critical questions easily, automatically summarize vast amounts of information, and effortlessly create new content – all based on the documents users organize in a Hub.
On August 28, BOX’s Board of Directors authorized an expansion of its stock repurchase program by $100 million. During the second quarter of fiscal year 2024, the company repurchased 2.2 million shares of its class A common stock at a weighted average price of $28.55 for $62 million.
In terms of forward non-GAAP P/E, BOX is trading at 15.91x, 22.1% lower than the industry average of 20.42x. The stock’s forward EV/EBIT multiple of 15.07 is 12.6% lower than the industry average of 17.23.
BOX’s trailing-12-month asset turnover ratio of 0.96x is 55% higher than the industry average of 0.62x. Its trailing-12-month net income and levered FCF margins of 4.86% and 30.52% are 130.1% and 313.5% higher than the industry averages of 2.11% and 7.38%, respectively.
For the fiscal second quarter that ended July 31, 2023, BOX’s revenue and gross profit stood at $261.43 million and $194.42 million, up 6.3% and 7.3% year-over-year, respectively. Its non-GAAP free cash flow increased 14.5% year-over-year to $20.57 million.
For the same quarter, its net income attributable to common stockholders came at $5.74 million, compared to a net loss attributable to common stockholders of $3.26 million. Its net income per share stood at $0.04, compared to a net loss per share of $0.02 in the year-ago quarter.
Street expects BOX’s revenue and EPS in the fiscal third quarter ending October 2023 to increase 4.8% and 22.7% year-over-year to $262.01 million and $0.38, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters.
The stock declined 1.5% intraday to close the last trading session at $23.74.
BOX’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Growth and Quality and a B for Value. Out of the 74 stocks in the Technology – Services industry, it is ranked #4.
To see the other ratings of BOX for Momentum, Stability, and Sentiment, click here.
Stock #2: GigaCloud Technology Inc. (GCT)
GCT provides end-to-end B2B e-commerce solutions for large parcel merchandise. Its marketplace connects manufacturers primarily in Asia with resellers in the United States, Asia, and Europe to execute cross-border transactions across furniture, home appliances, fitness equipment, and other large parcel categories.
In September, GCT entered into three new warehouse leases. Two of these warehouses will be in the U.S., resulting in a 20.7% increase in the country's warehousing space, while the third is in Bremen, Germany, marking a 47.8% increase in the total warehouse areas in Germany.
The strategically placed warehouses will be key distribution centers for GCT's large parcel merchandise, ensuring efficient product storage, processing, and distribution.
In terms of forward EV/Sales, GCT is trading at 0.48x, 55.8% lower than the industry average of 1.09x. The stock’s forward EV/EBIT multiple of 3.46 is 72.4% lower than the industry average of 12.54.
GCT’s trailing-12-month asset turnover ratio of 1.35x is 34.2% higher than the industry average of 1.01x. Its trailing-12-month net income and levered FCF margins of 8.88% and 15.91% are 102% and 210.9% higher than the industry averages of 4.40% and 5.12%, respectively.
For the fiscal second quarter that ended June 30, 2023, GCT’s total revenues and gross profit stood at $153.13 million and $40.36 million, up 23.5% and 137.1% year-over-year, respectively. Its adjusted EBITDA increased 219.3% year-over-year to $24.87 million.
For the same quarter, its net income attributable to ordinary shareholders and net income per ordinary share increased 221.2% and 200% year-over-year to $18.39 million and $0.45, respectively. For the six months that ended June 30, 2023, its cash and restricted cash stood at $182.40 million, up 259.6% year-over-year.
Street expects GCT’s revenue in the fiscal third quarter ending September 2023 to increase 27.6% year-over-year to $163.35 million, while EPS is expected to increase significantly year-over-year to $0.36.
The stock has gained 45.9% year-to-date to close the last trading session at $8.30. Over the past year, it gained 59%.
GCT’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
GCT has an A grade for Value and Quality and a B for Growth and Sentiment. It is ranked #3 within the same industry.
Click here for the additional POWR Ratings for GCT (Momentum and Stability).
Stock #1: LiveRamp Holdings, Inc. (RAMP)
RAMP is a global technology company providing an enterprise data collaboration platform. It enables secure and privacy-conscious sharing of first-party consumer data between companies and their business partners. RAMP’s solutions encompass data collaboration, activation, measurement and analytics, identity, and data marketplace.
On October 17, RAMP launched its new partner solution for identity integration with AWS Entity Resolution by Amazon Web Services (AWS) to increase market interoperability.
With this integration, marketers, publishers, tech platforms, and agencies can extend the data interoperability in the cloud to marketing and advertising destinations using RampID™, LiveRamp’s durable, privacy-centric identifier connecting clients to the digital and martech ecosystem.
The company repurchased approximately 835,000 shares for $20 million in the first quarter.
In terms of forward EV/Sales, RAMP is trading at 2.24x, 7.4% lower than the industry average of 2.42x. The stock’s forward EV/EBIT multiple of 15.19 is 11.8% lower than the industry average of 17.23.
RAMP’s trailing-12-month cash from operations of $93.50 million is 55.6% higher than the industry average of $60.08 million, while its trailing-12-month levered FCF margin of 22% is 198% higher than the industry average of 7.38%.
For the fiscal first quarter that ended June 30, 2023, RAMP’s revenues and non-GAAP income from operations before excluded items stood at $154.07 million and $20.84 million, up 8.3% and 420.4% year-over-year, respectively.
For the same quarter, its non-GAAP net earnings and non-GAAP earnings per share increased 463.2% and 480% year-over-year to $19.53 million and $0.29, respectively. Its adjusted EBITDA stood at $21.59 million, up 323.1% year-over-year.
Street expects RAMP’s revenue and EPS in the fiscal second quarter ending September 2023 to increase 3.5% and 11% year-over-year to $152.28 million and $0.24, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.
The stock has gained 53.1% over the past year to close the last trading session at $28.01. Over the past six months, it gained 24.3%.
RAMP’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
RAMP has an A grade for Sentiment and a B for Growth, Value, and Quality. It is ranked #2 within the Technology – Services industry.
Beyond what we’ve stated above, we have also rated the stock for Momentum and Stability. Get all ratings of RAMP 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:
UBER shares were trading at $40.47 per share on Thursday afternoon, down $1.88 (-4.44%). Year-to-date, UBER has gained 63.65%, versus a 9.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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