Cloud computing has completely changed the software industry by providing scalable and affordable infrastructure. Cloud-based software solutions are being used by businesses in greater numbers to increase accessibility, save costs, and streamline operations. As a result, the global software market is expected to grow at a CAGR of 11.8% by 2034.

Additionally, businesses are encouraged to use cloud-based services by government rules to reduce carbon emissions, which is anticipated to improve the segment’s growth prospects. Furthermore, because cloud-based subscriptions are so reasonably priced, hybrid cloud deployment is expected to become more widespread during the projected period.

Against this backdrop, let’s compare two software stocks to analyze which stock should one consider: SolarWinds Corporation (SWI) and HubSpot, Inc. (HUBS).

The Case for SolarWinds Corporation Stock

With a $2.36 billion market cap, SolarWinds Corporation (SWI) provides Information Technology (IT) management software products in the United States and internationally.

SWI’s stock has gained 7.6% over the past three months to close the last trading session at $13.85.

SWI’s 90.43% trailing-12-month gross profit margin is 80.7% higher than the 50.04% industry average. Also, its 26.31% trailing-12-month EBIT margin is 403.2% higher than the 5.23% industry average.

SWI’s total revenue increased 5.5% year-over-year to $200.03 million during the third quarter that ended September 30, 2024. Its non-GAAP gross profit grew 5.1% from the year-ago value to $180.96 million. The company’s non-GAAP operating income of $88.71 million indicates growth of 9.3% from the prior year’s quarter.

In addition, the company’s non-GAAP net income and EPS came in at $46.86 million and $0.27, reflecting increases of 23.3% and 17.4% year-over-year, respectively. Its adjusted EBITDA was $96.04 million in the quarter, up 12.9% over the prior year’s quarter.

Also, the company’s cash and cash equivalents and total assets stood at $193.02 million and $3.12 billion as of September 30, 2024.

Analysts expect SWI’s revenue for the fourth quarter (ended December 2024) to increase 2.4% year-over-year to $202.91 million. The consensus EPS estimate of $0.27 for the same quarter indicates a 13.5% year-over-year improvement. Moreover, SWI has an impressive earnings surprise history, having topped consensus revenue and EPS estimates in each of the trailing four quarters.

SWI’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates 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.

The stock has a B grade for Growth, Sentiment, Stability, and Value. SWI is ranked first out of 40 stocks in the Software – Business industry.

In addition to the POWR Ratings I’ve just highlighted, you can see SWI’s ratings for Momentum and Quality here.

The Case for HubSpot, Inc. Stock

Valued at $36.32 billion by market cap, HubSpot, Inc. (HUBS) is a leader in marketing software. It provides a cloud-based customer relationship management (CRM) platform for businesses. The company recently reported strong financial results, beating the analysts’ expectations and matching its guidance. Its strong earnings and revenue growth have positioned it as a compelling investment option.

Shares of HUBS have surged 6.1% over the past nine months but plunged 2.5% over the past month to close the last trading session at $703.49.

In terms of the trailing-12-month gross profit margin, HUBS’ 84.66% is 69.2% higher than the 50.04% industry average. However, its 1.35% trailing-12-month CAPEX/Sales is 35.1% lower than the 2.08% industry average.

For the third quarter that ended September 30, 2024, HUBS reported total revenue of $669.72 million, up 20.1% from the prior year’s quarter. Its gross profit for the quarter grew 20.9% from the year-ago value to $570.40 million. The company’s non-GAAP net income came in at $116.60 million and $2.18 per share, reflecting growths of 37.3% and 34.6% year-over-year, respectively.

Furthermore, the company’s non-GAAP free cash flow increased 99.6% year-over-year to $129.23 million. Also, HUBS’ total assets stood at $3.56 billion as of September 30, 2024, compared to $3.07 billion as of December 31, 2023.

Analysts expect HUBS’ revenue for the fourth quarter (ended December 2024) to come in at $673.96 million, indicating an increase of 15.8% year-over-year, and its consensus EPS estimate of $2.20 for the same period indicates a 24.8% improvement year-over-year. Moreover, the company has surpassed the consensus revenue and EPS estimates in all of the trailing four quarters, which is remarkable.

HUBS’ fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to Neutral in our proprietary rating system.

HUBS has a C grade for Momentum, Quality, and Stability. It is ranked #23 in the same industry.

Click here for the additional POWR Ratings for HUBS (Value, Sentiment, and Growth).

SolarWinds (SWI) vs. HubSpot (HUBS): Which Software Stock Should You Consider?

Technology has become an essential component of an organization’s digital strategy, and the transition to public cloud services has resulted in revenue stability. The demand for business software and services is expected to be driven by the rapid increase in the volume of enterprise data and the increased automation of business processes across various industries.

Leading software companies SWI and HUBS stand to capitalize on the optimistic industry outlook. However, SWI’s solid profitability might make it the better software stock pick.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software – Business industry here.

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HUBS shares were trading at $710.44 per share on Wednesday afternoon, up $6.95 (+0.99%). Year-to-date, HUBS has gained 1.96%, versus a 1.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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