ASX technology shares have staged a strong comeback from the March market correction. The S&P/ASX All Technology Index is up 80% from its March low. By comparison, the S&P/ASX 200 (ASX: XJO) is up just 30%. Investors are clearly favouring technology companies as the population increasingly turns to digital means of shopping, working, and communicating. With this in mind, we take a look at 4 ASX technology shares to buy in the next market dip.
The Megaport share price has risen 92% since its March low, surpassing previous highs. The increase has seen Megaport’s market capitalisation rise to $2 billion, doubling in 13 months. As a result, the technology company has joined the S&P/ASX 200 in the latest quarterly rebalance.
Founded in 2013, Megaport operates in the network-as-a-service (NaaS) space, providing bandwidth which allows users to connect to cloud services and data centres almost instantly. The company uses software-defined networking (SDN) to enable customers to provision circuits between data centres and their cloud providers. Businesses are able to quickly build and deploy connections to the services they run on. This then creates a network without complex configuration tasks.
In 1H FY20 Megaport reported a 70% increase in revenue which reached $25.9 million. The business generated a profit after direct network costs of $13.2 million for the half-year. This represented an increase of $8.3 million or 173% on the prior corresponding period. Megaport is now operating in 21 countries following the launch of services in Japan in December 2019.
The LiveTiles share price has doubled from its March low of 12 cents. The price received a boost this week after the founders noted the company had been named as the fastest-growing Australian technology company. In a letter to shareholders, the founders outlined the measures LiveTiles has taken to combat the coronavirus pandemic and how it stands to benefit.
LiveTiles is a provider of intranet software used to create dashboards, employee portals, and corporate intranets. During the pandemic, it has been assisting over 1,000 customers to support remote employee communications, operating system access, collaboration and document sharing. Due to the increase in remote working, there has been an uptick in interest in LiveTiles’ solutions.
LiveTiles reported annualised recurring revenue of $55.2 million at 31 March 2020, up from $52.7 million at 31 December 2019. Annualised recurring revenue has grown 60% in the last year and is up 4.9x in 2 years. Average annual recurring revenue per customer was over $51,500 at the end of the March quarter, up 32% on the prior corresponding period.
Nonetheless, the pandemic has forced the technology company to cut costs. Although, it has said it has no requirement to raise further capital to fund operating cash burn. LiveTiles reports that it is well capitalised with more than $33 million cash on hand as of 31 March. It is accelerating efforts to reach breakeven operating cash flow and is taking tangible steps to achieve this during 2020.
The Xero share price has increased 50% from March lows, spurred by the release of its full-year results in May. Xero reported that COVID-19 had a relatively modest impact on its operating and financial performance for the year. Operating revenue grew by 30% to NZD$718.2 million, with subscriber numbers growing 26% to $2.285 million.
Nonetheless, Xero warned that the impact of COVID-19 on March trading resulted in a reduction in annualised monthly recurring revenue progress. This, along with the ongoing impacts of COVID-19, will be reflected in Xero’s FY21 performance.
Xero provides cloud-based accounting software to predominantly small and medium businesses. It took the tech company more than a decade to reach its first million subscribers, but just 2 and a half years to add the next million, demonstrating the pace of its adoption across key markets.
Xero achieved its first full-year net profit after tax of $3.3 million in FY20. This was a $30.5 million improvement over the $27.1 million loss in FY19. Its results were driven by revenue growth, improved gross margin, and disciplined cost management. There is no doubt the pandemic will take a toll on many of Xero’s customers. While this creates uncertainty, Xero’s ambition to drive cloud accounting globally and grow its small business platform remains unchanged.
Online-only Kogan is one of the few retailers to benefit from the coronavirus pandemic, shares are up 270% since March. In April and May Kogan’s gross sales increased by more than 100% year on year. This drove a 130% increase in gross profit across the period.
Kogan added 126,00 active customers in May, growing active customer numbers to 2,074,000 at the end of the month. Adjusted EBITDA grew by 219.3% across April and May. Financial year to date adjusted EBITDA up by more than 50%. The company had cash of $58.6 million at the end of May with its debt facility drawn to $26 million.
Earlier this month Kogan launched a $100 million capital raising at an offer price of $11.45 per share. Funds will be used to increase financial flexibility, giving the ability to act quickly on accretive opportunities, expand the customer base, and enhance the operating model.
In May Kogan acquired Matt Blatt, a furniture and homewares retailer, for $4.4 million. The business reported $46.5 million in revenue in FY19, with 20-25% generated online. Of course, Kogan is not just an online retailer – it also offers services including insurance, internet, mobile, and energy.
Kogan has benefitted from a spike in sales due to lockdowns while many bricks and mortar stores were forced to close. This has pushed the ASX technology share well up, with the price to earnings (P/E) ratio over 70. Nonetheless, the company stands to benefit from the long-term shift to digital which has been accelerated by current events.
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Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of LIVETILES FPO, MEGAPORT FPO, and Xero. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia has recommended LIVETILES FPO and MEGAPORT FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Looking to buy ASX technology shares? Here are 4 to consider appeared first on Motley Fool Australia.
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