Rapid market dynamics have driven an expedited digital transformation. This year, the convergence of Artificial Intelligence (AI) integration and cloud-native advancements is anticipated to enhance software efficacy. Moreover, escalating demands for AI and Machine Learning (ML) are poised to foster cross-industry innovation.

Foreseeing significant sectoral expansion, I evaluated two software stocks, Robinhood Markets, Inc. (HOOD) and MarketWise, Inc. (MKTW), to ascertain the superior long-term investment. Prior to discussing these stocks, let's delve into the current dynamics shaping the software landscape.

In response to market pressures, organizations accelerated their digital transformation endeavors over the past two years. Intense competition drove this shift, as did the escalating demand for customized online experiences. Consequently, businesses innovated digital products, ushering in new trends in software development.

This year, development teams are poised to integrate TuringBots into the software development lifecycle, anticipating a 20-50% average productivity surge for coders. Seasoned engineers might experience productivity spikes exceeding 200% with genAI, elevating the industry's efficiency and adaptability.

Furthermore, the sector stands to reap benefits from the ongoing advancement of cloud-native technologies, prioritizing agility and streamlining IT management. The evolution is driving reduced complexity, improved scalability, and enhanced cost-efficiency, granting organizations superior performance and flexibility in their software operations.

The rising demand for AI and ML, both within and beyond the IT sector, also bodes favorably for the software industry. The trend is revolutionizing development processes, facilitating informed decision-making, precise budgeting, rapid prototyping, thorough testing, and even providing programming support.

Gartner (IT) predicts a 12.7% annual increase in global software expenditure, projected to reach $1.03 trillion by 2024, surpassing the 6.8% growth in overall IT spending, which is expected to reach $5 trillion. This underscores the crucial role of software in propelling and magnifying technological advancements within the industry.

Simultaneously, according to Mordor Intelligence, the business software market is forecasted to achieve a size of $650 billion by 2024, with projections soaring to $1.10 trillion by 2029, boasting a CAGR of 11.2%. Both HOOD and MKTW are poised to leverage these industry advancements.

In terms of price performance, HOOD has gained 21.8% over the past month, while MKTW plunged 13.2% during the same period. Additionally, HOOD surged 61.1% over the past three months, closing the last trading session at $13.42, whereas MKTW plummeted 24.7% during the same period, closing the last trading session at $2.10.

But which Software - Application stock could be a better pick? Let's find out.

Recent Financial Results

For the fiscal 2023 fourth quarter that ended December 31, 2023, HOOD’s total operating expenses increased 16.7% year-over-year to $445 million. As of December 31, 2023, the company’s current assets amounted to $31.79 billion, compared to $22.92 billion as of December 31, 2022.

Moreover, its total assets stood at $32.33 billion, down from $23.34 billion as of December 31, 2022.

For the fiscal 2023 third quarter that ended September 30, 2023, MKTW’s total operating expenses decreased 3.2% year-over-year to $95.11 million. As of September 30, 2023, the company’s current assets amounted to $312.96 million, compared to $279.18 million as of December 31, 2022.

Additionally, its total assets stood at $451.95 billion, up from $442.51 million as of December 31, 2022.

Expected Financial Performance

For the fiscal year ending December 2025, analysts expect HOOD’s revenue to reach $2.20 billion, indicating a 4.3% year-over-year increase. However, the company’s EPS for the same period is expected to decline 53.4% from the previous year to $0.10.

MKTW's consensus revenue estimate of $476.25 million for the fiscal year ending December 2024 reflects a 6.8% year-over-year increase. Moreover, the company’s EPS is expected to grow 56% from the prior year to $0.21.

Profitability

HOOD’s trailing-12-month revenue is four times that of what MKTW generates. However, MKTW is more profitable, with a trailing-12-month gross profit margin of 87.34% compared to HOOD’s 83.65%.

In addition, MKTW’s trailing-12-month net income margin and trailing-12-month ROTA of 1.28% and 18.76% compare with HOOD’s negative 29.01% and negative 0.18%, respectively.

Valuation

In terms of trailing-12-month Price/Sales, MKTW is trading at 0.14x, 97.8% lower than HOOD’s 6.41x. Moreover, MKTW’s trailing-12-month Price/Cash Flow of 1.48x compare with HOOD’s 9.91x.

POWR Ratings

HOOD has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, MKTW has an overall rating of B, translating to Buy. 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. HOOD has a D grade for Quality, correlating with its poor profitability metrics. The stock’s trailing-12-month ROTA of negative 1.67% compares with the industry average of 1.09%. Moreover, its trailing-12-month asset turnover ratio of 0.07x is 68.5% lower than the industry average of 0.21x.

On the other hand, MKTW boasts a B grade for Quality, consistent with its higher-than-industry profitability. The stock’s trailing-12-month ROTA and trailing-12-month asset turnover ratio of 1.31% and 1.05x are 21% and 390.8% higher than the industry averages of 1.09% and 0.21x, respectively.

Of the 132 stocks in the Software - Application industry, HOOD is ranked #120, while MKTW is ranked #22.

Beyond what we've stated above, we have also rated both stocks for Growth, Value, Momentum, Stability, and Sentiment. Click here to view HOOD’s ratings. Get all MKTW ratings here.

The Winner

The software industry is evolving with cloud-native technologies, driving agility and simplified IT management. The rising demand for AI and ML is further accelerating sector growth, reshaping development processes. Within this context, MKTW appears to be a more favorable investment due to its superior financial performance, discounted valuation, and robust profitability.

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 Software - Application industry here.

What To Do Next?

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HOOD shares were trading at $14.27 per share on Friday morning, up $0.85 (+6.33%). Year-to-date, HOOD has gained 12.01%, versus a 5.55% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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