As organizations increasingly prioritize and reallocate budgets towards critical software applications and platforms that boost operational efficiency, the software industry is experiencing a significant upswing. The expected surge in demand for AI-based software solutions further propels this growth.
So, while investors could consider investing in quality software stocks Mitek Systems, Inc. (MITK) and Kaltura, Inc. (KLTR), I think HubSpot, Inc. (HUBS) could be best kept on hold for December.
Before we dive into the fundamentals, let's take a moment to explore the current landscape of the software industry.
The growing investment in digitalization has led to a significant expansion in the demand for software applications, consequently prompting a rise in the number of software development companies catering to these needs. Statista states that the global software market is expected to hit $659 billion this year. Moreover, the sector’s revenue is expected to grow at a 5.4% CAGR over the next five years to $858.10 billion by 2028.
Moreover, the Software as a Service (SaaS) model has experienced a remarkable ascent in recent years, reshaping the software delivery and consumption landscape. The global SaaS market is projected to grow from $273.55 billion this year to $908.21 billion by 2030, exhibiting a CAGR of 18.7%. As businesses increasingly prioritize cloud-based solutions, the upward trajectory of SaaS is poised to persist, shaping the future of software deployment.
Additionally, the AI landscape is skyrocketing with the launch of OpenAI's ChatGPT, leading to widespread adoption in various industries. This surge in demand for software-driven solutions and rapid AI tool adoption propels the global AI software market toward extraordinary growth.
Projections indicate the market could reach $1.09 trillion by 2032, boasting an impressive CAGR of 23%.
Furthermore, there has been a discernible surge in investor interest in software stocks this year, exemplified by iShares Expanded Tech-Software Sector ETF’s (IGV) impressive 52% gain year-to-date.
In light of these encouraging trends, let’s look at the fundamentals of the three software stocks.
Stocks to Buy:
Mitek Systems, Inc. (MITK)
MITK provides mobile image capture and digital identity verification solutions worldwide. The company offers Mobile Deposit, Mobile Verify, Mobile Fill, and MiSnap products for remote depositing checks, identity verification, and form fill completion. It also provides an intuitive mobile-capture software for instant image capture.
MITK’s trailing-12-month EBIT and EBITDA margins of 16.19% and 27% are 245.3% and 197.8% higher than the industry averages of 4.69% and 9.07%.
On November 28, 2023, MITK and Abrigo, a prominent provider of compliance, credit risk, and lending solutions for financial institutions, announced a strategic partnership to equip community financial institutions with tools to combat financial crimes, particularly check fraud.
The partnership between Abrigo and MITK will lead to product integration, enabling a broader range of financial institutions to benefit from MITK's advanced fraud prevention solutions. General availability is expected to be announced in early 2024.
During the fiscal third quarter that ended June 30, 2023, MITK’s total revenue was $43.07 million, up 9.9% year-over-year. The company’s operating income grew 100.7% from the prior-year quarter to $1.79 million. Its non-GAAP net income amounted to $1.24 million and $0.20 per share.
MITK reaffirms its fiscal year 2023 guidance, projecting revenue between $169 million and $171 million, reflecting an approximate 18% year-over-year increase from the midpoint of the range. The anticipated non-GAAP operating margin for the current year is expected to fall within the range of 30% to 31%.
MITK’s revenue and EPS are expected to grow 18.6% and marginally year-over-year to $170.76 million and $0.92 in the fiscal year 2023. It surpassed EPS and revenue estimates in each of the four trailing quarters, which is impressive.
The stock has returned 21.3% over the past nine months and 8.6% over the past month to close the last trading session at $11.28.
MITK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
MITK also has a B grade for Value and Quality. It is ranked #22 out of 132 stocks in the Software – Application industry.
Click here for the additional POWR Ratings for Growth, Sentiment, Stability, and Momentum for MITK.
Kaltura, Inc. (KLTR)
KLTR is a global provider of Software-as-a-Service (SaaS) products and solutions, operating internationally through its Enterprise; Education; and Technology (EE&T) and Media and Telecom (M&T) segments.
KLTR’s trailing-12-month gross profit margin of 63.63% is 30.7% higher than the industry average of 48.67%. Its trailing-12-month asset turnover ratio of 0.90x is 44.4% higher than the industry average of 0.62x.
On November 8, KLTR announced that it had closed three seven-digit deals and twelve six-digit deals during the fiscal third quarter.
In September, KLTR expanded its partnership with Reshet 13, a major Israeli commercial broadcaster. KLTR powered Reshet’s full Cloud TV service in just three months, supporting various frontend devices like Smart-TVs, Android-TV, AppleTV, SVOD, and AVOD solutions.
Shuki Eytan, General Manager of Media & Telecom at KLTR, expressed excitement about adding value to Reshet 13's digital evolution and contributing to their short and long-term digital transformation strategy.
During the fiscal third quarter that ended September 30, KLTR’s subscription revenue rose 7.7% year-over-year to $40.85 million. Its total revenue increased 6.1% from the previous-year quarter to $43.54 million.
Its non-GAAP gross profit grew 4.9% year-over-year to $28.10 million and total operating expenses declined 12.6% from the year-ago quarter. Also, the company reported an adjusted EBITDA of $309 thousand, compared to a loss of $7.19 million in the same quarter last year.
For the fiscal year 2023, KLTR forecasts a year-over-year growth in Subscription Revenue of 5% to 6%, amounting to between $160.30 million and $161.70 million. Total Revenue is expected to grow by approximately 2% year-over-year, ranging from $171.50 million to $173 million.
Analysts expect KLTR’s EPS to rise 38.2% year-over-year in the fiscal year 2023. Its revenue is likely to increase 2.2% from the previous-year quarter to $172.57 million in the current year. Moreover, the company has exceeded the revenue estimates in each of the trailing four quarters.
Shares of KLTR have soared 4.3% over the past month to close the last trading session at $1.71.
It is no surprise that KLTR has an overall rating of B, equating to a Buy in our proprietary rating system.
It also has a B for Value and Stability. It is ranked #10 among 22 stocks in the A-rated Software - SAAS industry.
In addition to the POWR Ratings stated above, one can access KLTR’s Growth, Momentum, Sentiment, and Quality here.
Stock to Watch:
HubSpot, Inc. (HUBS)
HUBS provides a cloud-based Customer Relationship Management (CRM) platform for businesses. The company’s CRM platform includes marketing, sales, service, and content management systems, as well as integrated applications, such as search engine optimization, blogging, website content management, etc.
HUBS’ negative trailing-12-month EBIT and EBITDA margins of 5.05% and 3.73% are lower than the industry averages of 4.69% and 9.07%. On the other hand, its trailing-12-month gross profit margin of 83.62% is 71.8% higher than the industry average of 48.67%.
On November 1, HUBS announced that it had entered into a definitive agreement to acquire Clearbit, a top B2B data provider, to help HUBS’ customers grow with industry-leading customer intelligence.
For the fiscal second quarter, which ended on June 30, 2023, HUBS’ total revenue increased 25.6% year-over-year to $557.56 million. The company’s non-GAAP net income amounted to $83.40 million and $1.59 per share, up 137.9% and 130.4% from the prior-year quarter, respectively. Also, its non-GAAP free cash flow rose 82.2% from the year-ago quarter to $64.74 million.
Yet, its operating expenses rose 24.5% from the year-ago quarter to $490.47 million.
For the fiscal fourth quarter, HUBS anticipates total revenue between $556 million and $558 million, benefiting from a 2-point tailwind due to favorable foreign exchange rates. The projected non-GAAP operating income ranges from $85 million to $86 million. Non-GAAP net income per common share is expected to be in the range of $1.53 to $1.55, considering around 52.70 million weighted average shares outstanding.
Street expects HUBS’ revenue and EPS for the fiscal fourth quarter (ending December 2023) to increase 18.9% and 39.2% year-over-year to $558.30 million and $1.55, respectively. Moreover, the company topped its revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 75.7% over the past year and 19.3% over the past month to close the last trading session at $496.52. However, it has declined 5.4% over the past three months.
HUBS’ mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which equates to a Neutral in our proprietary rating system.
It has a C grade for Momentum and Stability. Within the Software – Business industry, it is ranked #18 among 44 stocks.
To see HUBS’ Value, Growth, Sentiment, and Quality ratings, click here.
What To Do Next?
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HUBS shares were trading at $490.18 per share on Thursday morning, down $6.34 (-1.28%). Year-to-date, HUBS has gained 69.54%, versus a 20.11% 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.
Are These Software Stocks a Buy or Hold Opportunity for December? StockNews.com
