In this article, I have assessed the fundamentals of two software stocks, Robinhood Markets, Inc. (HOOD) and MarketWise, Inc. (MKTW), to determine which could dominate the market in the upcoming quarter.

The global shift towards technology and digital solutions remains a notable trend. The persistent need for software solutions in sectors like business, healthcare, and entertainment signals a bright future for the industry’s progression. Moreover, generative AI has substantially impacted software development in the past year, while cloud-native technologies have continued to advance, offering reduced complexity, scalability, and cost-effectiveness. Additionally, the increasing demand for AI and ML transcends IT, reshaping the application software sector.

The market for generative AI in software development is expected to exceed $169.20 billion by 2032, growing at a robust CAGR of 21.4% spanning 2023 to 2032.

Additionally, this year, the software industry is anticipated to embrace increased AI integration across various products, alongside a potential surge in VR adoption driven by next-gen headset releases from major players. According to Gartner, worldwide software spending is expected to grow by 12.7% year-over-year to $1.03 trillion in 2024. The favorable industry trends should benefit both stocks.

While HOOD has surged 31.7% over the past month, MKTW has declined 9.4%. HOOD and MKTW have soared 81.6% and 7.8%, respectively, over the past six months.

Let us dig deeper into the fundamentals of the featured stocks:

Latest Developments

On February 16, HOOD and Consensys launched the integration of Robinhood Connect with MetaMask, the leading self-custodial web3 wallet. This integration enables HOOD’s customers to purchase crypto through MetaMask’s Buy Crypto feature using HOOD’s low-cost order engine. The collaboration aims to promote the adoption of web3 by providing users with frictionless, secure, and self-custodial onboarding to web3.

On the other side, on March 5, MKTW declared a quarterly cash dividend to holders of Class A common stock of $0.01 per share, which will be paid on April 25, 2024. The company distributes an annual dividend of $0.04, which yields 2.30% on the current market price, higher than its four-year average dividend yield of 0.87%.

Recent Financial Results

HOOD reported net revenues of $1.87 billion in the fiscal year 2023. Its operating expenses rose 1.3% year-over-year to $2.40 billion. As of December 31, 2023, its total liabilities stood at $25.64 billion million, up from $16.38 billion as of December 31, 2022.

Conversely, during the fiscal year 2023, MKTW generated net revenue of $443.25 million. Its operating expenses declined 6.8% year-over-year to $396.38 million. As of December 31, 2023, total liabilities stood at $685.50 million, down from $740.89 million as of December 31, 2022.

Past and Expected Financial Performance

HOOD’s revenue has grown at a CAGR of 24.9% over the past three years. Street expects HOOD’s EPS to fall 44.5% year-over-year in the fiscal year 2025, but its revenue is expected to rise 4.5% year-over-year.

In contrast, MKTW’s revenue has grown at a CAGR of 13.5% over the past five years. Analysts predict MKTW’s EPS and revenue will rise 73.3% and 11.1% year over year in fiscal year 2025.

Profitability

MKTW’s trailing-12-month gross profit margin of 87.20% is higher than HOOD’s 83.65%. MKTW’s trailing-12-month asset turnover ratio of 1.07x is higher than HOOD’s 0.07x.

Thus, MKTW is more profitable.

Valuation

In terms of forward P/S ratio, HOOD’s 7.54x is significantly higher than MKTW’s 0.15x. HOOD’s trailing-12-month P/E multiple of 77.66 is substantially higher than MKTW’s 8.23x.

Thus, MKTW is more affordable.

POWR Ratings

HOOD has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. But, MKTW has an overall rating of B, translating to a 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’s D grade for Value is justified by its high valuation compared to the industry averages. In terms of forward Price/Sales, HOOD’s 7.54x is 200.2% higher than the industry average of 2.51x. Its forward P/E multiple of 77.66 is 631.1% higher than the industry average of 10.62.

However, MKTW has a B grade for Value. Its forward P/S and P/E multiples of 0.15 and 8.23 are 94.2% and 22.5% lower than the 2.51 and 10.62 industry averages, respectively.

In the 131-stock Software – Application industry, HOOD is ranked #123, while MKTW is ranked #22.

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

The Winner

The software industry is thriving due to increased reliance on technology across sectors like business, healthcare, and entertainment. Moreover, generative AI and cloud-native technologies drive advancements, and growing demand for AI and ML is reshaping the sector.

HOOD and MKTW stand out as key players in the software sector, each vying for dominance in the market landscape. However, MKTW’s superior financials, higher profitability, and cheaper valuation indicate it could be better poised to capitalize on industry trends in the second quarter.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of A (Strong Buy). View all the top-rated stocks in the Software – Application industry here.

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MKTW shares were trading at $1.71 per share on Thursday afternoon, down $0.03 (-1.72%). Year-to-date, MKTW has declined -37.05%, versus a 10.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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