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Kiwi dairy producer, Fonterra Shareholders’ Fund (ASX: FSF), shares are unchanged this morning despite the company announcing a solid first quarter update. At the time of writing, the Fonterra share price is trading at $4.11 after closing yesterday’s session at the same level.

What was announced by Fonterra?

The Fonterra Shareholders’ Fund is a managed investment scheme that allows shareholders to invest in the performance of the Fonterra Co-operative Group, which is listed in New Zealand.

The company says the co-operative has continued to make progress on implementing its strategy and had a solid start to the first quarter. It delivered normalised earnings before interest and tax (EBIT) of NZD$250 million, up NZD$72 million on last year.

Fonterra advised it has seen improvements right across its business, with a couple of exceptions. These were Europe, which has been impacted by higher costs, and Africa, which has been impacted by lower volumes after which the company shifted its products to meet the strong demand across Asia.

The company also reported that its Greater China Foodservice business has been the stand-out performer so far, as demand for dairy in China continues to recover strongly from COVID-19. Fonterra expects to expand its foodservice business into another 13 cities in China, bringing the total number of cities it operates in to more than 360.

Fonterra says demand in its Southeast Asia (SEA) consumer business has also improved year on year. Meanwhile the company’s SEA foodservice business has started to recover as COVID-19 restrictions eased in some markets.

According to Fonterra, it will continue to divest non-core assets after announcing it will sell its China Farms for NZD$555 million, which will further reduce debt.

How has the Fonterra share price performed in 2020?

In September, Fonterra reported a full year net profit after tax of NZ$659 million for FY20, up by NZ$1.3 billion compared to the prior year.

At the time, the company said its underlying business performance had improved, with Fonterra’s foodservice business having a significantly better first half, especially in Greater China. However, this improved performance was partially offset by the disruption caused by COVID-19.

The Fonterra share price has risen by 8.16% in 2020, after falling by up to 15% in May. At the current Fonterra share price, the company commands a market capitalisation of $437 million.

More reading

• What do big brokers think about soaring commodity prices and ASX mining shares?
• Why the Cashrewards (ASX:CRW) share price is charging higher today
• Forget gold and Bitcoin. I’d follow Warren Buffett’s advice after the stock market crash
• Zebit (ASX:ZBT) share price higher on record Black Friday performance
• Premier Investments (ASX:PMV) share price higher on AGM update

Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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The Cashrewards Pty (ASX: CRW) share price is pushing higher on Friday morning following the release of a trading update.

At the time of writing, the cashback rewards platform provider’s shares are up 3% to $2.03.

What is Cashrewards?

Cashrewards is a recently listed cashback centred e-commerce ecosystem. It allows its members to browse brands and offers and receive cashback on transactions by shopping online or in-store.

At present, it has over 800,000 members and is providing them with a broad array of cashback offers via its 1,500+ merchant partners.

These partners include Adidas, Amazon.com.au, Apple, Booking.com, Cellarmasters, Chemist Warehouse, Dan Murphy’s, Dell, Expedia, Myer Holdings Ltd (ASX: MYR), Nike, The Iconic, and Microsoft.

Management notes that its ecosystem has driven more than $2.3 billion of total transaction value (TTV) for merchant partners since its inception, which has translated into more than $100 million of cashback for members.

Trading update.

This morning Cashrewards provided the market with an update on operating metrics for the key Black Friday and Cyber Monday weekend.

According to the release, Black Friday was the biggest single trading day in Cashrewards’ history. Unique shopping members were up 83% and transactions were up 54% compared to the prior corresponding period.

Across the entire four-day period, management advised that unique shopping members were up 63% and transactions were up 44% year on year.

Also increasing was its TTV, which was up 53% on the prior corresponding period. This was driven by a strong performance across key shopping verticals.

Cashrewards’ CEO and Managing Director, Bernard Wilson, commented: “We are very pleased that the positive momentum outlined in our Prospectus has continued into the December quarter, including across these key sales events, during which the fashion, beauty, children and homewares categories performed particularly strongly.”

“We are also pleased to be seeing the early signs of an uplift in domestic travel bookings with the recent re-opening of Australian internal borders,” he added.

More reading

• Cashrewards (ASX:CRW) share price lifts on successful IPO debut

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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Warren Buffett has a long track record of using share price declines, such as those experienced during a stock market crash, to his advantage. He has often used deteriorating market prospects to buy high-quality stocks at low prices. By holding them for the long run, he has generated impressive returns over a sustained period of time.

Therefore, while the rising Bitcoin and gold prices may seem appealing to investors, purchasing a diverse range of shares at low prices could be a more profitable long-term move.

Warren Buffett’s focus on value

Warren Buffett has not only sought to buy cheap shares after a stock market crash. Rather, he has bought high-quality companies when they trade at low prices. As such, he does not necessarily focus on the stocks that offer the widest discount to their sector peers, or those companies that have recorded the greatest share price falls. Instead, he seeks to buy the best companies when they trade for less than they are worth.

A stock market crash can make this process easier. Investor sentiment towards the equity market can weaken significantly, which may mean that some strong businesses trade at temporarily low prices. Over time, they can mount excellent recoveries due to them having strong financial positions and wide economic moats. With many companies still trading at low prices following the 2020 stock market crash, there may be opportunities to follow Warren Buffett’s strategy today.

The increasing popularity of gold and Bitcoin

Warren Buffett has generally avoided investing in Bitcoin and gold due to the opportunities available in the stock market. However, both assets have become increasingly popular among investors since the start of 2020.

Gold’s price has moved to a record high this year due to an uncertain economic outlook and low interest rates. This means that its defensive appeal has become more relevant to risk-averse investors, while a lack of returns on income-producing assets further increase the attraction of the precious metal. Meanwhile, Bitcoin’s supposed low correlation with the world economy may have been at least partly responsible for its rise since the start of the year.

Buying cheap shares after the stock market crash

However, using Warren Buffett’s strategy may offer a superior risk/reward opportunity than gold and Bitcoin after the stock market crash. The stock market has a long track record of delivering successful recoveries following its declines. And, with it being possible to identify high-quality shares at low prices through focusing on their fundamentals, they may offer less risk than Bitcoin. Its price is based on investor sentiment, since it has no fundamentals from which to deduce whether it offers a margin of safety.

Meanwhile, gold’s price may already factor in a period of weak economic performance. Therefore, as investor sentiment improves over the long run and risk aversion declines, the cheap stocks of today purchased via Warren Buffett’s value investing strategy may outperform the precious metal.

More reading

• Why the Cashrewards (ASX:CRW) share price is charging higher today
• Zebit (ASX:ZBT) share price higher on record Black Friday performance
• Premier Investments (ASX:PMV) share price higher on AGM update
• Alibaba hasn’t given up on this high-growth market
• How I’d find top growth shares to buy at cheap prices in December

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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The Zebit Inc (ASX: ZBT) share price is pushing higher after the release of a trading update.

At the time of writing, the US-based e-commerce company’s shares are up 1% to 95 cents.

Despite this, the Zebit share price is still trading materially lower than its October IPO price of $1.58.

How is Zebit performing?

According to the release, the “Amazon for the under-served” had a record Black Friday sales period with $1.63 million in net sales generated on the day. This was an increase of 29.9% compared to Black Friday 2019.

In addition to this, the company provided an update on its performance for the first two months of the fourth quarter of FY 2020.

Over the period, Zebit has delivered total net sales of $23.5 million. This is an increase of 21.8% compared to the same period in FY 2019.

It also revealed that it recently achieved a record 3,000 customer approvals in a single day.

You might be wondering why Zebit needs to approve customers. These approvals relate to its unique business model which, unlike traditional online retailers like Kogan.com Ltd (ASX: KGN) and Amazon, comes with an in-built buy now pay later function. Its focus is on consumers with low credit scores that may be unable to get credit elsewhere.

Pleasingly, Zebit advised that it continues to see strong credit performance, which is leading to a widening contribution margin.

In light of the above, the company reiterated that it is on track to achieve its prospectus forecast for the year ending 31 December 2020.

Zebit’s President and CEO, Marc Schneider, commented: “We are extremely pleased with our trading results over the last few months and we believe that the sales achieved in the first two months of Q4 is a strong indicator of how healthy and robust the December month is expected to be.”

“So far this holiday season has proven to be a solid tailwind for the business. Q4 is seasonally the Company’s strongest, and we are entering the final month of FY20 with strong momentum. I look forward to publishing our Q4 results in January 2021 and our FY20 numbers shortly thereafter,” he concluded.

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• Premier Investments (ASX:PMV) share price higher on AGM update
• Alibaba hasn’t given up on this high-growth market
• How I’d find top growth shares to buy at cheap prices in December
• How to benefit from the cloud computing boom with ASX shares
• President Trump to sign bill that could kick Chinese stocks off U.S. exchanges

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. 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.

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The Premier Investments Limited (ASX: PMV) share price is pushing higher this morning following the release of its annual general meeting update.

At the time of writing, the retail conglomerate’s shares are up 1% to $23.03.

What did Premier Investments say at its annual general meeting?

At the annual general meeting, Premier Investments’ Chairman, Solomon Lew, spoke about FY 2020, current trading conditions, and its expectations for the future.

In respect to FY 2020, Mr Lew reminded investors that Premier investments was a strong performer despite facing significant COVID-19 headwinds.

The chairman pointed out that the company delivered a 29% increase in net profit after tax to $137.8 million for the year. This was despite the fact that retail store sales were down 78.4% and global sales were down $131.1 million on the prior comparable period between 11 March to 15 May.

Trading update.

Pleasingly, the company’s positive form has continued in FY 2021.

So much so, the Premier Retail business reported record sales during the Black Friday and Cyber Monday promotional period.

This led to its global online sales for the first 18 weeks of FY 2021 increasing 70% over the same period of last year.

Outlook.

No guidance has been provided for the first half or the full year. However, Mr Lew is very optimistic on the future.

He commented: “We have strong collections of wanted product for each of our brands, we have well managed inventory, and we have already seen a very positive customer response to this season’s products, with a willingness to spend as evidenced by our recent record Black Friday and Cyber Monday trading results.”

“This, together with the re-opening of borders in Australia and the recent re-opening of our stores in England gives us reason to be optimistic during this all-important trading period,” he added.

And while he warned that the crucial season is not yet over, he believes the company is significantly better placed than its key competitors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. 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.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tencent Holdings Ltd (HKG: 0700) and NetEase Inc (NASDAQ: NTES), China’s two largest video game publishers, regularly dominate the country’s mobile gaming charts.

Tencent currently publishes four of the ten highest-grossing iOS games in China, according to App Annie, including its top three games: Honor of Kings, Moonlight Blade, and Peacekeeper Elite. Two of NetEase’s games, Fantasy Westward Journey and Lutu Zhibin, have cracked the top ten.

However, investors might not have noticed that Alibaba Group Holding Ltd (NYSE: BABA), China’s top e-commerce and cloud company, has also been quietly climbing the charts via its gaming subsidiary, Lingxi Interactive.

Romance of the Three Kingdoms: Strategy Edition, which Lingxi launched last year, is now the fourth-highest-grossing iOS game in China — and puts Alibaba within striking distance of overtaking Tencent’s top games. Let’s look back at how Alibaba entered the gaming market, and where this oft-overlooked business could be headed.

Why is Alibaba publishing video games?

Alibaba co-founder Jack Ma adamantly opposed investing in video games during his tenure as CEO, which ended in 2013. But in 2014, his successor Jonathan Lu launched Alibaba’s first mobile gaming platform.

That same year, Alibaba bought UC Mobile and its gaming platform 9Game, as well as a stake in the American game developer Kabam. But Alibaba’s initial gaming efforts — which included mini games for its Taobao Mobile app and its Laiwang chat app — couldn’t gain any traction against Tencent’s WeChat and its massive portfolio of mobile games.

Alibaba’s gaming business subsequently stagnated, and Daniel Zhang eventually succeeded Lu as Alibaba’s new CEO in 2015. In 2017, Zhang rebooted Alibaba’s gaming business by buying EJoy, a gaming company co-founded by NetEase’s former chief operating officer Zhan Zhonghui.

That acquisition led to the creation of Lingxi Interactive, Alibaba’s dedicated game studio, and Zhan was put in charge of its future gaming projects. Lingxi launched several games, but only started gaining mainstream attention after it launched its first Romance of the Three Kingdoms game last year.

How fast is the gaming division growing?

Alibaba previously incubated Lingxi in its innovation initiatives segment, which mainly included experimental businesses that didn’t neatly fit into its core commerce, cloud, and digital media segments.

But in the first quarter of fiscal 2021, which started in April, Alibaba moved Lingxi from the innovation initiatives segment to its digital media and entertainment segment, which also houses its streaming video platform Youku Tudou, its streaming music platform AliMusic, and other businesses.

Alibaba still doesn’t disclose Lingxi’s revenue separately. But a comparison of its innovation initiatives and digital media segments before and after the transfer in the first quarter strongly suggests the mobile gaming segment is generating at least 1 billion yuan ($152 million) in revenue per quarter:

Metric	Q3 2020	Q4 2020	Q1 2021	Q2 2021
Innovation Initiatives Revenue (RMB)	1.86 billion	2.29 billion	1.09 billion	1.17 billion
Growth (YOY)	40%	90%	(6%)	10%
Digital Media and Entertainment Revenue (RMB)	7.40 billion	5.94 billion	6.99 billion	8.07 billion
Growth (YOY)	14%	5%	9%	8%

Source: Alibaba.

Back in September, Alibaba told the South China Morning Post that Romance of the Three Kingdoms: Strategy Edition had generated 3.7 billion yuan ($563 million) in the first half of the calendar year.

Based on those numbers, Lingxi could be on track to generate over $1 billion in annual revenue. That would be a solid milestone, but it would still be tiny compared to Tencent, which generated 41.4 billion yuan ($6.3 billion) in revenue from its online gaming business in the third quarter alone. NetEase’s gaming business generated 18.7 billion yuan ($2.7 billion) in revenue last quarter.

$1 billion would also only equal less than 1% of Alibaba’s projected annual revenue next year. In short, Alibaba’s gaming business won’t reduce its dependence on its core commerce and cloud businesses anytime soon.

But its gaming business could keep growing

Lingxi is still a tiny business segment for Alibaba, but the popularity of Romance of the Three Kingdoms: Strategy Edition and its sister title, Romance of the Three Kingdoms: Fantasy Land, could bolster the studio’s brand, pave the way for more games, and boost its digital media revenue. Alibaba didn’t say anything about Lingxi during last quarter’s conference call, but investors should still keep a close eye on this growing business.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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• Here are the US shares that CommSec customers are buying

Leo Sun owns shares of Tencent Holdings. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alibaba Group Holding Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends NetEase. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Alibaba hasn’t given up on this high-growth market appeared first on Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Taking the time to find top growth shares to buy at cheap prices could be a worthwhile move in the long run. It may allow an investor to take part in improving company performance, while benefitting from a potential increase in valuation over the coming years.

Through focusing on solid businesses operating in sectors with strong growth outlooks, but that face challenging near-term prospects, it may be possible to capitalise on the stock market’s future growth potential.

Identifying top growth shares in attractive sectors

Top growth shares are likely to deliver improving profitability in the coming years because of attractive prospects for the industry in which they operate. If they have weak operating conditions in the coming years, they are more likely to record disappointing sales and profit growth.

As such, identifying industries with attractive growth prospects could be a sound move. This process may understandably be more difficult at the present time due to the rapid changes that are taking place across the global economy in response to the coronavirus pandemic. However, some sectors appear to have sound long-term growth prospects that could be conducive to rising profitability for their incumbents.

For example, sectors such as healthcare and technology may provide long-term opportunities for top growth shares. Trends such as an ageing world population and changing consumer tastes that rely to a greater extent on new technology may mean that opportunities to expand sales and profitability are extensive within those sectors.

Focusing on strong companies facing uncertain operating conditions

Finding top growth shares at cheap prices may mean focusing on strong companies that face challenging near-term prospects. Strong companies may be those that have solid financial positions that can be used to invest in rivals or in developing new goods and services. They may also have wide economic moats that could enable them to deliver superior financial performance to their peers over the long run.

However, they may be facing difficult operating conditions in the short run caused by the pandemic. This may provide an investor with the opportunity to buy them while they trade at cheap prices. Other investors may be more concerned with their near-term outlooks, rather than their long-term growth potential. Through having a patient approach, it may be possible for an investor to capitalise on long-term growth opportunities when they trade at low prices.

Managing risks

Clearly, the prospects for top growth shares can change rapidly. Their current outlooks may improve or worsen over the coming months and years. Therefore, it is crucial to manage risk, in terms of diversifying across a range of sectors and geographies. This may not only mean lower losses, but could also create a less volatile portfolio that provides a more effective means of achieving an investor’s financial goals in the coming years.

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Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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Because of the pandemic and the working from home initiative, you might have heard people talking about the cloud or cloud computing a lot this year.

Cloud computing is best described as the on-demand availability of computer system resources such as data storage and computing power, without direct active management by the user.

It’s what allows you to stream endless hours of TV shows via Netflix, do your accounting at home with Xero Limited (ASX: XRO), or communicate with your colleagues via Zoom.

While the pandemic has accelerated the adoption of cloud-based products, there’s still a long way to go before cloud computing growth plateaus.

Especially due to new technologies and the arrival of 5G internet. The latter is expected to create new cloud-based applications and opportunities that were impossible with previous networks.

This bodes well for companies with exposure to the cloud and could underpin strong demand for their products and services over the next decade.

Which companies will benefit on the Australian share market? Three ASX shares with exposure to cloud-computing are listed below:

Macquarie Telecom Group Ltd (ASX: MAQ)

Macquarie Telecom is a provider of telco and hosting services to corporate and government customers. It is the latter offering that is expected to be the key driver of growth for the company over the coming years. Its Hosting segment has been growing at a strong rate and appears well-positioned to continue this trend. Especially after recent capacity expansions were made in order to capture the increasing demand for data centre services in Australia.

Megaport Ltd (ASX: MP1)

Megaport offers scalable bandwidth for public and private cloud connections, metro ethernet, and data centre backhaul. It has networking equipment in hundreds of data centres around the world. This has created a software layer that provides an easy way for users to create and manage network connections. For example, through the Megaport network, users can create and run a global network with or without the need for physical infrastructure. Demand has been strong for its services this year, leading to Megaport reporting a 57% increase in monthly recurring revenue (MRR) to $5.7 million in FY 2020.

NEXTDC Ltd (ASX: NXT)

NEXTDC is an innovative data centre company which operates a collection of world class centres in key locations across Australia. Demand for its services has been growing very strongly in recent years and particularly in 2020. This has led to the company accelerating the construction of new centres in order to meet the rising demand. In addition to this, management recently revealed that it is looking into expanding into the Asia market in the near future.

More reading

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James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has recommended 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.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

On Wednesday, the House of Representatives unanimously passed a bill that could result in the delisting of Chinese companies from U.S. stock exchanges. The Holding Foreign Companies Accountable Act (HFCAA) has been sent to President Trump, who is expected to sign the measure later today, which also received unanimous support from the Senate earlier this year. 

The sweeping legislation would require foreign companies to submit to increased accounting disclosures and to certify that they are not owned or controlled by a foreign government. It also includes provisions that the statements be backed up by an audit conducted in accordance with U.S. accounting rules by the Public Company Accounting Oversight Board (PCAOB).

The legislation could result in the delisting of a number of popular Chinese companies from major U.S. exchanges, including e-commerce players Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD), as well as internet search giant Baidu (NASDAQ: BIDU) and electric vehicle (EV) maker NIO (NYSE: NIO).

Just last month, the Securities and Exchange Commission announced it was preparing to adopt tougher rules that could take effect as early as 2022. These requirements lay the groundwork for the delisting of foreign equities when their companies fail to comply with U.S. auditing rules. 

Regulators have long been vexed by the Chinese government’s refusal to allow the PCAOB to review audits of Chinese companies listed on U.S. exchanges. Some believe this contributed to the spectacular fall from grace of Luckin Coffee (OTC: LKNC.Y), which flamed out earlier this year following the discovery of massive and widespread fraud. The company was found to have manufactured a significant portion of its 2019 revenue and was subsequently booted from the Nasdaq exchange.  

Numerous companies in China have admitted to contingency plans if the bill is passed. NetEase (NASDAQ: NTES) and JD.com each acknowledged the proposed rules when they announced subsequent listings on the Hong Kong Stock Exchange.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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• Here are the shares Magellan has been buying recently

Danny Vena owns shares of Baidu and JD.com. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alibaba Group Holding Ltd., Baidu, and JD.com. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends NetEase. The Motley Fool Australia has recommended JD.com. 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.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There are several reasons why Pushpay Holdings Ltd (ASX: PPH) shares are worth considering.

What does Pushpay do?

Pushpay is a business that facilitates electronic donations to charitable organisations. Its main client base is large and medium US churches.

The business has an application where the church can stay in touch with its congregation. One of the most useful options is a livestreaming service. This is a very helpful feature in this era of COVID-19 and social distancing.

It recently acquired the Church Community Builder (CBB) business. Pushpay is now offering the combined service of both the original technology and CBB in an offering called ChurchStaq. Pushpay said that ChurchStaq is resonating with its current client base and it outperformed internal expectations. Management think this reinforced the hypothesis that the majority of customers prefer an integrated end to end solution.

It’s one of the ASX shares that is trying to tap into the trend of cash payments going digital. It was achieving this even before COVID-19 came along.

Here are three reasons to consider Pushpay shares:

Rising profit margins

Pushpay is demonstrating its economies of scale with each of its results.

In the latest report, which was the for the FY21 half-year result, it revealed that the gross profit margin increased from 65% to 68%.

It also reported that its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin went up from 17% to 31%.

As Pushpay grows its processing volume and revenue, more of the revenue will fall to the next level of profit. In the FY21 half-year result it grew its net profit after tax (NPAT) by 107% to US$13.4 million.

Big goals

Pushpay wants to become the leader of the US faith sector. It wants to reach a 50% market share of large and medium US churches. Pushpay is aiming for US$1 billion of revenue when it reaches that market share target.

The company recently said that it expects “significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.”

In FY21 alone it’s expecting to more than double its EBITDAF to between US$54 million to US$58 million. This guidance for FY21 has been increased more than once already. The most recent guidance was for EBITDAF to be between US$50 million to US$54 million.

Optionality

At the moment the focus for Pushpay is on growing its position in the large and medium US church sector. It can continue to expand its software offering for its existing market by creating more efficiency advances for users and offering more services.

However, the company already states that it also serves non-profit organisations and education providers in the US and other jurisdictions. It has a lot of room to expand in these areas. 

Pushpay can do a number of things to increase its total addressable market. It can target smaller churches. Pushpay could look to expand into other religions in the US. The company could even grow in other countries.

The valuation

The Pushpay share price has risen by 84% since the start of the year, factoring in the share split. And it’s actually up by 171% since the bottom of the COVID-19 crash.

At the current Pushpay share price it’s valued at 25x FY23’s estimated earnings using Commsec’s estimate numbers. This valuation is lower when compared to the FY23’s Commsec earnings estimate for Altium Limited (ASX: ALU) which is at 44x the projected earnings.

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Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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.

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