AudioCodes vs. Vonage: Which Cloud Telecom Stock is a Better Buy?
The increasing demand for virtual communications has helped cloud-based telecom companies generate solid growth over the past year. With enterprises p...
The increasing demand for virtual communications has helped cloud-based telecom companies generate solid growth over the past year. With enterprises planning to at least in-part continue with remote working arrangements, and with service providers expanding their networks, popular cloud telecom stocks Vonage (VG) and AudioCodes (AUDC) are expected to benefit from rising demand. But let's find out which of these stocks is a better buy now.
Vonage Holdings Corp. (VG) in Holmdel, New Jersey, is a provider of cloud communications services and solutions through multiple devices for businesses and consumers worldwide. The company operates through two segments—Vonage Communications Platform and Consumer. It also provides high-speed broadband Internet services and Vonage-enabled devices.
AudioCodes Ltd. (AUDC) is an Israel-based company that provides advanced communications software and products and productivity solutions for the digital workplace. The company enables enterprises and service providers to build and operate all IP voice networks in unified communications, contact centers, and hosted business services, and serves OEMs, system integrators and distributors, and network equipment providers worldwide.
The COVID-19 pandemic has made companies heavily dependent on cloud-based communication devices and solutions to continue running their operations remotely. As a result, cloud-based telecom companies have seen solid growth over the past year.
Even though the pandemic is under control (or close to it) in many Western economies, enterprises are adopting hybrid working models based on the benefits of remote working pandemic or no pandemic. This, along with the roll out of 5G technology, should help cloud-based telecom companies continue generating demand for their solutions. Indeed, the global telecom cloud market is expected to grow at a 21.4% CAGR over the next five years to reach $52.30 billion by 2026. So, both AUDC and VG should benefit substantially against this backdrop.
While VG has gained 8.3% over the past month, AUDC advanced 9.2%. In terms of their past six months' performance, AUDC is a clear winner with 22.4% gains versus VG's 6.7% returns. But, which of these stocks is a better pick now? Let's find out.
On May 5, 2021, VG introduced a redesigned Channel Partner Program and a new Partner Experience Portal as a part of its Vonage Accelerate strategic growth initiative that aims to accelerate and amplify focus, investments and efforts in the Channel. Leveraging VG's Vonage Communications Platform (VCP), along with these enhanced capabilities, will enable the company's channel partners to create successful customer outcomes, accelerate business growth and expand revenue potential. Because most businesses continue to rely on cloud communications to improve their customer experience and business outcomes, VG's updated program should generate good sales of its products in the near-term.
On April 7, Civica Group, a U.K,-based software company that is focused on the public sector, chose VG to lead the digital transformation of more than 300 of the U.K.'s local authority communications channels. Using VG's Vonage Video API in Civica's existing applications and devices, should enable the company to create an engaging video platform for both internal meetings and external communications with the public, and view secure and easily accessible information from any device.
AUDC has been selected by Algar telecom, a leading Brazilian communications service provider, to deliver unified communications and collaboration, including comprehensive Direct Routing voice connectivity, to Microsoft Corporation's (MSFT) Microsoft Teams. Using AudioCodes Live Cloud for Microsoft Teams managed offerings enables business customers to migrate their existing voice infrastructure simply and cost-effectively to Microsoft Teams. AUDC is likely to benefit from expanded market reach in the near-term.
Back in January, AUDC added its recording solution, SmartTAP 360⁰ Live, to its AudioCodes Live portfolio as a managed service. With the growing use of virtual agents or conversational bots in contact center environments, SmartTAP delivers systematic, high-quality recording that enables the continuous development and optimization of voice.AI technologies. Having achieved Microsoft Teams certification, AUDC's SmartTAP 360⁰ Live is expected to create high demand in the markets.
Recent Financial Results
VG's total revenues for its fiscal first quarter, ended March 31, 2021, increased 11.9% year-over-year to $332.90 million. The company's income from operations came in at $8.93 million, up 132% from the prior-year period. Its comprehensive loss was $3.32 million for the quarter, which represents an 88.1% year-over-year decline. VG's loss per share has been reported at zero for the quarter. The company had $53.84 million in l cash, cash equivalents and restricted cash as of March 31, 2021.
For its fiscal first quarter, ended March 31, 2021, AUDC's total revenues increased 13.1% year-over-year to $58.84 million. The company's operating income came in at $10.12 million, up 64.3% from the prior-year period. While its non-GAAP net income increased 64.3% year-over-year to $12.74 million, its non-GAAP EPS increased 48% year-over-year to $0.37. As of March 31, 2021, the company had $113.35 million in cash, cash equivalents and restricted equivalents.
Past and Expected Financial Performance
VG's revenue and total assets grew at CAGRs of 6.3% and 16.5%, respectively, over the past three years. The company's EBIT has decreased at a 30.8% CAGR over the past three years.
Analysts expect VG's revenue to increase 8% year-over-year in the current quarter (ending June 30, 2021), 8.4% in the current year and 9.5% next year. Its EPS is expected to increase 8.2% year-over-year in the current quarter, 19.2% for the current year, and 31.6% next year. The stock's EPS is expected to grow at a 10% rate per annum over the next five years.
In comparison, AUDC's revenue and total assets grew at CAGRs of 12.1% and 26.2%, respectively, over the past three years. The company's EBIT grew at a 59% CAGR over the past three years.
Analysts expect AUDC's revenue to increase 12.1% in the current quarter (ending June 30, 2021), 11.2% in the current year, and 11.6% next year. Its EPS is expected to increase 13.1% in the current quarter, 9.1% in the current year and 11.4% next year. Analysts expect the stock's EPS to grow at 11.1% rate per annum over the next five years.
VG's trailing-12-month revenue is 5.4 times AUDC's. However, AUDC is more profitable with an 18.6% EBIT Margin versus VG's 2%.
Also, AUDC's net income margin and ROE values of 14.1% and 21.2%, respectively, compare favorably with VG's negative values.
In terms of non-GAAP forward P/E, VG is currently trading at 72.42x, which is 218.2% higher than AUDC, which is currently trading at 22.76x. AUDC's 1.21x non-GAAP forward PEG is significantly lower than VG's 6.41x.
Also, in terms of forward EV/EBITDA, VG's 22.08x is 30.5% higher than AUDC's 16.92x.
While VG has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, AUDC has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Value, AUDC has been graded a C grade, which is in sync with its slightly higher valuation versus its peers. AUDC's 22.17x trailing-12-month EV/EBITDA value is 8.8% lower than the 20.38x industry average. However, VG's D grade for Value reflects its overvaluation. The company has a 37.18x trailing-12-month EV/EBITDA, which is 82.5% higher than the 20.38x industry average.
However, AUDC has an A grade for Quality, which is consistent with its higher-than-industry profitability ratios. The company's 18.6% trailing-12-month EBIT Margin is 131.4% higher than the 8% industry average. In comparison, , VG's C grade for Quality is in sync with its slightly lower-than industry profit margins. The company's 2% trailing-12-month EBIT Margin is 75.6% lower than the 8% industry average. Of 55 stocks in the B-rated Technology - Communication/Networking industry, AUDC is ranked #12. VG is ranked #17 of 24 stocks in the Telecom - Domestic industry.
Beyond what we've stated above, our POWR Ratings system has also rated both AUDC and VG for Growth, Momentum, Stability, and Sentiment. Get all VG ratings here. Also, click here to see the additional POWR Ratings for AUDC.
The need for secure and efficient cloud-based telecom solutions during the pandemic has made companies in this space witness significant growth over the past year. As enterprises are expected to continue hybrid-working models in the future, both AUDC and VG are well positioned to benefit in the upcoming months. However, AUDC appears to be a better buy here based on its higher profitability and lower valuation.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology - Communication/Networking industry, and here for those in the Telecom - Domestic industry.
VG shares were trading at $14.79 per share on Monday morning, up $0.12 (+0.82%). Year-to-date, VG has gained 14.87%, versus a 14.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She's passionate about educating investors, so that they may find success in the stock market.AudioCodes vs. Vonage: Which Cloud Telecom Stock is a Better Buy? appeared first on StockNews.com
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