The software application market is anticipated to witness long-term growth, owing to the increasing demand amid growing digital transformation among businesses across several sectors, reliance on mobile devices for communication, entertainment, and productivity, and numerous technological advancements.

Software companies Samsara (IOT) and MongoDB (MDB) reported their quarterly results on March 7. IOT surpassed analysts’ estimates for revenue and EPS by 7% and 49.1%, respectively, in the fourth quarter. MDB also performed well by beating consensus revenue and EPS estimates by 5.2% and 79.1% in the last reported quarter, respectively.

Given their mixed prospects, it could be wise to wait for a better entry point in software stocks Samsara Inc. (IOT) and MongoDB, Inc. (MDB) now.

Before delving deeper into the fundamentals of the two stocks, let’s take a quick look at the software industry landscape.

As businesses across several sectors, including healthcare, finance, and logistics, undergo digital transformation, there is growing demand for software applications to streamline operations, improve productivity, and enhance customer experiences. Emerging technologies like AI, machine learning, and cloud play a significant role in shaping the software application industry.

Gartner reported that venture capital firms have invested more than $1.70 billion in generative AI solutions, with AI-enabled drug discovery and AI software coding being the most funded over the past three years. This could bode well for the software companies.

The Biden administration set standards and developed tools that are required to get rid of the risks and focus on the AI potential by supporting the safe development and deployment of generative AI. The government is taking measures by providing more than 200 leading AI companies to join a new U.S. consortium to safeguard their interests and promote the industry’s growth.

Besides, 5G, cloud, and Internet of Things (IoT) are poised to drive the software industry’s growth. It is anticipated that IoT will be used to create digital twins, while 5G will focus more on the production of smart cars.  A prediction of achieving about 17.08 billion connected devices is made, driven by smart homes and cloud computing, which could speed up and simplify business operations.

According to the Grand View Research report, the global application development software market is projected to reach $733.50 billion, growing at a CAGR of 24.3% by 2028.

Considering these encouraging market trends, let’s take a look at the fundamentals of the two Software – Application stocks, starting with number 2.

Stocks to Hold:

Stock #2: Samsara Inc. (IOT)

IOT provides the Connected Operations Cloud, which is a platform that allows businesses that depend on physical operations to harness IoT (Internet of Things) data to develop actionable business insights and improve their operations in the U.S. and internationally.

Yesterday, IOT announced new enhancements that strengthen its commitment to data security and privacy. Samsara achieved four industry-leading ISO certifications: ISO 27001, ISO 27017, ISO 27018, and ISO 27701.

The company also incorporated the Trust Services Criteria (TSC) of confidentiality into its SOC 2 scope to complement its existing TSCs of security and availability. These results build upon IOT’s strong foundation of customer data protection and its dedication to data security and privacy management.

On the same date, IOT collaborated with TMS, a top logistics and transportation company in Mexico. The main objective of this strategic partnership is its continuous improvement of road safety standards, with the ambitious aim of reducing accidents by 24% during the year 2024 and the costs associated with them.

IOT’s trailing-12-month gross profit and levered FCF margins of 72.92% and 15.67% are 49.3% and 72.6% higher than the industry averages of 48.86% and 9.08%, respectively. However, the stock’s EBITDA margin of negative 28.98% compares to the industry average of 9.44%.

For the fiscal fourth quarter that ended February 3, 2024, IOT’s adjusted revenue and non-GAAP gross profit increased 37.5% and 53.2% year-over-year to $256.54 million and $210.67 million, respectively. Its non-GAAP income from operations was $1.27 million versus a loss from operations of $76.98 million in the prior year’s quarter.

For the same quarter, the company’s non-GAAP net income and non-GAAP net income per share attributable to common stockholders came at $23.13 million and $0.04, compared to a non-GAAP net loss and non-GAAP net loss per share attributable to common stockholders of $8.27 million and $0.02 in the year-ago quarter, respectively.

Street expects IOT’s revenue for the fiscal first quarter ending April 2024 to increase 30.6% year-over-year to $266.85 million, while the company is expected to report a loss per share of $0.01 for the ongoing quarter. The company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

IOT’s stock has gained 64.3% over the past year to close the last trading session at $34.36. Over the past nine months, it has gained 29.3%.

IOT’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Quality and Momentum. Within the B-rated Software – Application industry, IOT is ranked #113 out of 132 stocks.

To see additional POWR Ratings for Value, Sentiment, Stability, and Growth for IOT, click here.

Stock #1: MongoDB, Inc. (MDB)

MDB provides a global general purpose database platform. Its developer data platform is an integrated set of databases and related services that allow development teams to address the growing variety of modern application requirements. The company provides MongoDB Atlas, MongoDB Enterprise Advanced, and Community Server.

On February 29, 2024, MDB announced the availability of its industry-leading, multi-cloud developer data platform MDB Atlas in six additional cloud regions in Canada, Germany, Israel, Italy, and Poland.

With this expansion, MDB Atlas is available in 117 cloud regions across Amazon Web Services, Google Cloud, and Microsoft Azure to meet the demands of more customers with data residency, availability, and latency-sensitive application requirements.

On December 4, 2023, MDB announced the general availability of MDB Atlas Vector Search and MDB Atlas Search Nodes to make it faster and easier for organizations to securely build, deploy, and scale next-generation applications at less cost.

MDB Atlas Vector Search simplifies bringing generative AI and semantic search capabilities into real-time applications, while MDB Atlas Search Nodes provide dedicated infrastructure for applications that use generative AI and relevance-based search.

MDB’s trailing-12-month gross profit and levered FCF margins of 74.85% and 13.93% are 53.2% and 53.5% higher than the industry averages of 48.86% and 9.08%, respectively. However, the stock’s net income margin of negative 11.70% compares to the industry average of 2.55%.

During the fiscal fourth quarter that ended January 31, 2024, MDB’s total revenue and non-GAAP gross profit stood at $458 million and $353.63 million, up 26.8% and 25.9% year-over-year, respectively. Its non-GAAP income from operations grew 86% from the previous year’s period to $69.20 million.

Furthermore, the company’s non-GAAP net income and non-GAAP net income per share increased 53.3% and 50.9% from the year-ago quarter to $71.11 million and $0.86, respectively.

Analysts expect MDB’s revenue and EPS for the fiscal first quarter ending April 2024 to increase 21.9% and 9.1% year-over-year to $449.08 million and $0.61, respectively. Moreover, the company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.

For the fiscal year 2025, Street expects the company’s revenue to increase 20.9% year-over-year to $2.56 billion; however, its EPS is expected to decline 3.4% year-over-year to $3.22 for the current year.

The stock has declined 9.9% over the past month but gained 84.2% over the past year to close the last trading session at $412.01.

MDB’s mixed prospects are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system.

MDB has a C grade for Quality, Sentiment, and Momentum. Within the same industry, it is ranked #88.

Beyond what we’ve stated above, we have also rated the stock for Value, Stability, and Growth. Get all ratings of MDB here.

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MDB shares were unchanged in premarket trading Friday. Year-to-date, MDB has gained 0.77%, versus a 8.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Neha Panjwani

From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance. More...

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