Tag: Motley Fool

The Netwealth Group Ltd (ASX: NWL) share price will be on watch this morning after the investment platform provider announced a strategic investment.

What did Netwealth announce?

Netwealth announced a strategic investment and partnership with specialist fintech data solutions provider, Xeppo.

The company has purchased an initial 25% equity stake in Xeppo, with the option to increase its stake to 50% in the future. While no details have been provided in respect to how much Netwealth is paying for the stake, it advised that it is not material.

According to the release, Xeppo specialises in connecting, matching, and reconciling data from a wide range of sources to support the wealth management, accounting, and mortgage industries. Its technology allows users to better manage client relationships, monitor compliance, and drive new business and revenue opportunities.

Why is Netwealth investing in Xeppo?

Netwealth’s joint managing director, Matt Heine, explained the reasons behind the company’s investment in Xeppo.

He said: “A key element of Netwealth’s strategy is to expand an enrich the data which underpins our current and future technology and which sits at the core of our ‘whole of wealth’ and client portal offering.”

“From our recent research, we found that advice firms on average use between 12 and 15 technology systems in their business, all of which have different data models, significant data discrepancies and often overlap from a features perspective. For example, the Netwealth platform captures customer details as does an advice firm’s CRM, planning software, fact find and client portal.”

The managing director believes that its investment in Xeppo can help solve this problem.

He concluded: “Working closely with Xeppo can solve this challenge and enable systems to better connect and integrate with each other driving business efficiency and great client experiences.”

Finally, in conjunction with this investment, the company advised that it will be expanding its current integrations to support two-way data feeds between accounting and financial planning systems. This includes those offered by Bravura Solutions Ltd (ASX: BVS) and Xero Limited (ASX: XRO).

More reading

• ASX 200 rises 0.8%, Treasury Wine Estate shares turn sour
• Netwealth share price on watch as net profit surges 22%

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 Xero. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. The Motley Fool Australia owns shares of Netwealth. 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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Are you looking to buy some blue chip ASX shares for your portfolio this week?

If you are, then I think you should look at the ones listed below. I believe all three have the potential to generate solid returns for investors over the next decade.

Here’s why I would buy these ASX blue chip shares today:

Cochlear Limited (ASX: COH)

The first blue chip ASX share to consider buying is Cochlear. It is the global leader in implantable hearing devices. I believe it has very strong growth potential over the 2020s thanks to its exposure to the ageing populations tailwind. I expect this tailwind to lead to solid demand for its hearing products over the next decade and underpin strong earnings growth. This could make the Cochlear share price a long term market beater.

CSL Limited (ASX: CSL)

Another quality blue chip ASX share to consider buying is CSL. It is the biotherapeutics giant behind the world class CSL Behring and Seqirus businesses. Over the last decade CSL has grown its earnings at a consistently solid rate thanks to the strong demand for its therapies. The good news is that I expect more of the same over the next 10 years. Especially given the expected surge in demand for influenza vaccines in the coming years because of the pandemic and the increasing demand for immunoglobulins. Supporting its growth will be its research and development pipeline. This has a number of therapies under development that have the potential to generate billions of dollars in sales.

Goodman Group (ASX: GMG)

A final blue chip ASX share I would buy for the long term is Goodman Group. I think the integrated commercial and industrial property company is well placed for growth thanks to its high quality portfolio of assets. This portfolio comprises strategically located modern, high quality properties in key gateway cities around the world. Management notes that these properties have shortened the distance between businesses and consumers and put its customers ahead of the market. A testament to the quality of these assets are its tenants. Goodman counts the likes of Amazon, DHL, and Walmart among its tenants.

More reading

• 3 retirement myths you can’t afford to believe
• Top brokers name 3 ASX shares to buy today
• The best ASX blue chip shares to buy after the market selloff
• BrainChip (ASX:BRN) and Zip (ASX:Z1P) were among the most traded shares on the ASX last week
• 4 of the best ASX 200 shares to buy in September

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 Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear 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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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.

Investors interested in gaining access to the stock and bond markets currently enjoy a wide variety of possibilities as the universe of exchange-traded funds (ETFs) has grown. For the most part, this growth in low-cost, easy-to-access ETFs has been a boon for investors. However, while gaining access to niche sectors of the market through these products has never been easier, the risk to investors getting burned in some of these funds has increased.

As the popularity of exchange-traded funds has grown, providers have begun to create more intricate securities. In general, ordinary investors should avoid these less-understood funds. Some of these newer, more complex products come with higher risks and are not appropriate for the average investment portfolio.

Understanding the difference between standard and complex funds

Most investors have a strong grasp on how exchange-traded funds operate. In a standard ETF, the value of the security will correlate exactly with the value of an underlying basket of stocks or bonds. The SPDR S&P 500 is a good example of a standard fund.

This is not necessarily the case with more intricate securities. These more complex products go beyond simply imitating an underlying basket of stocks and bonds. An example is the Proshares UltraPro Short S&P 500, which utilizes debt, also known as leverage, in their investments to augment their profits (or losses). The added complexity is what makes an investment like this potentially dangerous.

Another example of this exotic ETF product is the United States Oil Fund (NYSEMKT: USO), which attempts to track the performance of a global oil price index. In this case, the security utilizes futures contracts in order to achieve the performance of the underlying market. However, the value of futures contracts can be affected by many factors that have no correlation to the oil market, such as interest rate levels and time until expiration. It is quite possible that the security’s value could be negatively affected by factors that have nothing to do with movements in the oil market.

In fact, many investors lost money in the USO back in April as front month futures contracts went to zero during upheaval in the oil markets. This was a situation that the oil market (and its investors) had never experienced before.

How investing in these complex securities can go wrong

It is difficult, if not impossible, for ordinary investors to fully understand the underlying risks and how these instruments are going to perform under different market conditions. This is particularly the case in extremely volatile markets like the COVID-19 financial crisis.

An example of this involves long/short funds, such as the ProShares Long Online/Short Stores (NYSEMKT: CLIX). Long/short funds are patterned after an institutional hedge fund strategy that aims to buy stocks that they believe have a strong chance of increasing in value and sell stocks short that they believe should lose in value.

In theory, investors can expect this strategy to do well during periods of volatility, like we just experienced in the COVID-19 crisis. Todd Rosenbluth, head of ETF and mutual-fund research at CFRA said, “This seemed like it was a great environment for long-short strategies as we saw U.S. equities fall into a bear market and subsequently recover much of the losses.” However, that did not happen. As Mr. Rosenbluth points out, “The majority of funds in the category lost money, some substantially.”

Understanding the underlying risks is challenging

Many of these products have been created to track the performance of markets which historically have been the domain of expert institutional investment professionals. These professionals have extensive research staffs and fully understand the risks that they are undertaking. Unfortunately, this is not the case for most ordinary investors.

Global oil markets and long/short strategies are just two examples of this. Case in point, many professional oil traders warned investors to avoid trading oil funds during the market upheaval in April. Those that did not heed this warning lost money.

Exchange traded funds are an amazing innovation that help investors gain quick and inexpensive access to broad market diversification. However, it can be extremely difficult for ordinary investors to fully understand the risks of the more complex securities. If investors do not fully understand the risks and rewards of a particular strategy, it is best not to invest at all.

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

More reading

• Better buy: Amazon vs Netflix
• Netwealth share price on watch after strategic investment in Xeppo
• Bolster your portfolio with these outstanding ASX blue chip shares
• 3 ASX tech shares that are still in the buy zone
• Redbubble (ASX:RBL) and this ASX share have more than doubled in 2020

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

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The technology sector has gone gangbusters this year, so many fear most of those success stories are now overvalued.

But there are still some bargain ASX tech shares to be snapped up, according to one fund manager.

Prime Value portfolio manager Richard Ivers told The Motley Fool that he’s currently high on 3 particular stocks.

His Prime Value Emerging Opportunities Fund already owns all 3, and he’s excited to see how they will fare.

City Chic Collective Ltd (ASX: CCX)

City Chic is a retailer that sells plus-size women’s clothing.

The chain used to be part of Specialty Fashion Group, which also had brands like Millers and Katies that were bleeding cash.

SFG sold off the loss-makers to Noni B two years ago, and kept City Chic for itself.

And now the company is flying with 70% of sales coming online, Ivers said.

“It’s got a really great management team. A guy called Phil Ryan is the CEO, and he’s been there for years,” he told The Motley Fool.

“Now he’s got the chains off him and he can just run this business properly.”

Last year, City Chic acquired a US competitor called Avenue. This year, it’s in the process of buying out another US rival, Catherines.

And Ivers reckons more deals will be coming.

“They’ve got a balance sheet with about $100 million in cash. And there’s other opportunities to acquire online bits of other distressed assets,” he said.

“Online is growing faster than bricks-and-mortar [sales]… and it’s also higher margin for them.”

News Corporation (ASX: NWS)

While most people would not think of Rupert Murdoch’s media business as a tech company, Ivers disagrees.

“A lot of the focus is on ‘old world’ assets – the Foxtels and the newspaper, which are low quality assets… No one would debate that.

“But where the real value is in their holding of REA Group Limited (ASX: REA) and cash.”

Ivers calculates that News’ stake in the real estate classifieds website plus its cash represents about $19.30 of value per share.

And News Corp is currently trading at $20.69.

According to Ivers, the other “exciting” part of News’ business is the publishing company Dow Jones. 

That subsidiary includes The Wall Street Journal, a publication that has a paywall for a wealthy readership receptive to paying for financial news.

“Historically [Dow Jones] has been reported as part of newspapers. So analysts have struggled to understand what sort of [price-to-earnings] multiples you should put that on,” said Ivers.

“But for the first time, in their results just gone, they’ve actually split out Dow Jones.”

And those numbers showed a healthy subsidiary with earnings increasing 13% in the COVID-affected fourth quarter. 

Taking its rival New York Times Co (NYSE: NYT)’s 25-times multiple, Ivers said Dow Jones alone could be worth US$6 billion ($8.2 billion).

Redbubble Ltd (ASX: RBL)

Redbubble is an online marketplace for artists to sell printed forms of their work. 

The site acts as a middle man between artists and printers, who put the art on coffee mugs, clothing, manchester and the like.

Despite its shares rising more than 9-fold since March, Ivers still sees tremendous upside.

“They did $350 million of revenue last year… Of that $350 million, about 30% of any dollar of growth falls through to EBITDA.”

That means if Redbubble experiences 50% growth, that’s about $50 million of earnings. Ivers said that would take the company to about a 15-times price-to-earnings multiple.

This compares favourably to other businesses like Temple & Webster Group Ltd (ASX: TPW) and Kogan.com Ltd (ASX: KGN), which are selling at far higher multiples.

“What’s interesting about Redbubble is that it’s a global business. Only 5% of its revenues are in Australia. So the opportunity set is much bigger.”

More reading

• Redbubble (ASX:RBL) and this ASX share have more than doubled in 2020
• 2 of the best ASX tech shares to buy and hold until 2025
• 5 quality ASX shares to buy in September
• 5 things to watch on the ASX 200 on Tuesday
• Where I’d invest $20,000 into ASX shares right now

Tony Yoo 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 and Temple & Webster Group Ltd. The Motley Fool Australia has recommended Kogan.com ltd, REA Group Limited, and Temple & Webster Group 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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Although the All Ordinaries Index (ASX: XAO) is down 10% since the start of the year, not all shares on the index have performed as poorly.

In fact, a few shares on the All Ords have even managed to double in value this year despite the pandemic.

Two ASX shares that have achieved this are listed below. Here’s why they are on fire in 2020:

Redbubble Ltd (ASX: RBL)

The Redbubble share price is up an incredible 288% since the start of 2020. Investors have been fighting to buy the ecommerce company’s shares after its sales exploded during the second half of FY 2020 thanks to the shift to online shopping during the pandemic.

For the 12 months ended 30 June 2020, Redbubble delivered a 43% increase in full year revenue to $368 million and a 141% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to $15.3 million. Interestingly, one of the biggest drivers of its sales growth were fashionable facemasks. Pleasingly, Redbubble’s strong form has continued early in FY 2021, with sales more than doubling during the month of July. In light of this, it looks well-placed to deliver another bumper result for the 12 months ahead.

Zoono Group Ltd (ASX: ZNO)

The Zoono share price is up a massive 217% in 2020. The catalyst for this was the biotech company’s exceptionally strong performance during the pandemic thanks to increased demand for surface and hand sanitisers. Demand was so strong that it reported revenue of NZ$38.3 million in FY 2020, up from just NZ$1.8 million a year earlier.

Things were equally impressive for its earnings, which lifted 944.5% year on year to NZ$20.6 million. The big question will be whether this level of sales is sustainable when the crisis eases or just a one-time sugar hit for Zoono. I would suggest investors keep their powder dry until there is more certainty with its future sales.

More reading

• 3 ASX tech shares that are still in the buy zone
• 2 of the best ASX tech shares to buy and hold until 2025
• 3 ASX shares for beginners to buy
• Is the Redbubble share price about to burst?
• Why the Afterpay share price crashed 9% lower today

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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The Qantas Airways Limited (ASX: QAN) share price has had a tough year. Shares in the Aussie airline are down 43.6% to $4.04 per share as of yesterday’s close.

Clearly, the travel industry is one of the hardest hit by the coronavirus pandemic and subsequent restrictions. I’d consider travel alongside the likes of entertainment, energy and hospitality in terms of those doing it tough.

So, the Qantas share price is clearly under pressure. But despite some short-term challenges, is now the time to pickup Qantas shares for a bargain?

Why the Qantas share price could be cheap

For one thing, I think there is implicit government support for the Aussie airline. I can’t see the Federal Government letting Qantas fold given its proud history and the effective duopoly in the Aussie travel market.

Of course, everyone thought much the same with Ansett. But times have changed and the impacts of COVID-19 won’t last forever. I think there is strong implicit support to get Qantas through to the other side of this.

That all combines to help the Qantas share price and the risk-return characteristics. On top of that, I think the company is proactively managing its balance sheet with careful capital management.

That includes the airline parking much of its fleet in the Mojave Desert and looking to move its headquarters out of Sydney. 

Cost cutting is key right now given the limited cash coming in the door. The group announced a $1.9 billion equity raising in June to help strengthen its balance sheet and accelerate its recovery from the pandemic.

All of this tells me that the Qantas share price could have a lot of upside with carefully managed downside. No one can predict the future, but I think there is a clear strategy to manage the airline out of this crisis over a 3-year span.

Foolish takeway

It’s hard to look at the Qantas share price as a bargain based on short-term returns. However, I think the airline can return to its former glory as a leading carrier and strong ASX dividend share in the medium to long-term.

It’s certainly a punt in the current climate, and perhaps I’d wait until the economic picture is more clear in early 2021, but Qantas could be a bargain for $4.04 per share.

More reading

• Is now the time to be buying ASX travel shares? 
• Qantas (ASX:QAN) considers leaving Sydney
• Why the Qantas (ASX:QAN) share price is sinking lower today
• Half of ASX 200 stocks at risk as China-Australia relations hit new low
• How to build a recession-beating ASX share portfolio

Motley Fool contributor Ken Hall 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 Openpay Group Ltd (ASX: OPY) share price jumped 3.0% higher yesterday but is the buy now, pay later (BNPL) share a good buy?

Why the Openpay share price is surging

I think a lot of the recent share price movements have less to do with Openpay and more to do with the broader market.

US tech stocks have been volatile in recent weeks and we’ve seen the same for Aussie tech and BNPL shares. The Openpay share price is now down 22.7% since 1 September but has recovered 11.9% this week.

Of course, the BNPL share is still up 150% for the year to $3.10 per share having hit an all-time high of $4.98 per share in late August.

There is something of a mania going on in ASX BNPL shares. You only have to look at rival Afterpay Ltd (ASX: APT) to see just how badly investors want to buy in.

To be fair, while the price to earnings (P/E) ratios are eye watering, recent capital gains have been underpinned by strong growth profiles.

Openpay’s full-year result contained plenty of good news for long-term investors. That included a successful expansion into the UK, a new Business to Business (B2B) offering with Woolworths Group Ltd (ASX: WOW) and strong local market growth.

The number of active plans jumped 229% to 824,000 with 141% more active customers and total transaction values up 98% to $192.8 million.

Openpay’s revenue jumped 64% to $18.0 million despite posting a 155% increase in its net loss after tax to $36.5 million.

Is the BNPL share a cheap buy?

For all of the positive growth signs, the Openpay share price may be a touch expensive.

I do like that it’s now down 22.7% in September but it feels like a lot of potential growth is baked into the current valuation. The group now has a market capitalisation of $334.4 million but I’d like to see some more cash generation.

However, if you’re deadset on buying BNPL shares, Openpay could be a good option. I do think it has a solid growth strategy but has some way to go before catching established rivals like Afterpay or Zip Co Ltd (ASX: Z1P).

If the Openpay share price were to dip below the $3 per share mark, I think I’d have to consider buying in.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 3 ASX shares I wouldn’t touch with a 10-foot pole
• Buy and hold these ASX shares to grow your wealth
• ASX 200 up 0.7%: Afterpay (ASX:APT) higher, QBE Insurance (ASX:QBE) lower on UK update
• Why Afterpay, Clinuvel, Kogan, & SEEK shares are storming higher today

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO and Woolworths 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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The Woodside Petroleum Limited (ASX: WPL) share price climbed 1.2% higher yesterday in good news for shareholders. I’m starting watch the ASX energy share and wondering if it’s cheap enough to buy right now.

How has the Woodside share price performed in 2020?

Despite edging higher yesterday, 2020 has been a tough year for Australia’s largest oil and gas producer.

The Woodside share price has slumped 46.7% lower in 2020 as oil prices have been smashed. The coronavirus pandemic has seen demand for energy slump as the manufacturing and travel industries have ground to a halt.

An oil price war between Saudi Arabia-led OPEC+ and Russia also didn’t help. That culminated in oil contract prices briefly going negative in May.

These factors have combined to send the Woodside share price slumping lower in 2020 but is the ASX oil share cheap enough to buy?

Is the ASX oil share a cheap buy or a falling knife?

The outlook for the oil and gas markets are very uncertain in FY21. Much of this relies on the demand side of the equation including how quickly global restrictions ease and key energy-heavy sectors pick back up.

Since bottoming out in the March bear market, the Woodside share price has climbed 20.4% higher but has been trending lower since May.

Overall, investors seem to be pretty pessimistic on the sector. I tend to agree and think there would have to be a further discount to consider buying right now.

I’m not much of a speculator and falling ASX energy shares is about as speculative as it gets. Woodside does have a $17.5 billion market capitalisation and is an out and out large-cap share.

However, there are plenty of challenges facing the industry right now. I’d want to see open borders and a recovering travel industry before buying in.

A stabilising oil price would also be a big factor given how much the Woodside share price relies on the Brent and WTI crude prices.

Foolish takeaway

It’s worth considering buying ASX energy shares at a near-50% discount. However, I think volatile commodity prices and an uncertain macro outlook for FY21 make the Woodside share price too expensive right now.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 5 things to watch on the ASX 200 on Wednesday
• 5 things to watch on the ASX 200 on Monday
• 5 things to watch on the ASX 200 on Thursday
• Saudi oil price cut to hit ASX shares

Motley Fool contributor Ken Hall 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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If you’re not sure that a $5,000 investment in the share market is worth your while, give me a few minutes to try and change your mind.

As of 30 June 2020, the Australian share market has provided investors with an average return of 8.8% per annum over the last 30 years. This is even after factoring in the chaos caused by the coronavirus pandemic in 2020.

If you were to invest $5,000 every year into the share market for 30 years and earned an 8.8% return per annum, your investments would grow to be worth almost $715,000 at the end of the period.

And thanks to the power of compounding, you will need just a further 4 years of the same to take the value of your investments beyond $1 million.

I think this demonstrates why allocating $5,000 of your funds to the share market each year is worth it and can help you generate significant wealth in the future.

With that in mind, here is where I would invest $5,000 into the share market right now:

Altium Limited (ASX: ALU)

The first share to consider investing $5,000 into is Altium. I think the electronic design software platform provider would be a great option. This is because of its exposure to the rapidly growing Internet of Things and artificial intelligence markets. Given its leadership position and the explosive growth expected from these markets, I believe it is well placed to deliver strong earnings growth over the next decade.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is a donor management and engagement platform provider. In FY 2020 it reported a very impressive ~1,500% increase in EBITDAF thanks to strong demand for its platform, particularly during the pandemic. Pleasingly, this strong form is expected to continue in FY 2021, with management providing EBITDAF guidance of US$48 million to US$52 million. This represents a 91.2% to 107% increase year on year. But its growth won’t stop there. Management is aiming to grow its revenue to US$1 billion in the future. This compares to revenue of US$127.5 million in FY 2020.

ResMed Inc. (ASX: RMD)

A final option for your $5,000 investment is this sleep treatment-focused medical device company. I believe it could be a fantastic option due to its industry-leading products and massive market opportunity. Management estimates that there are close to 1 billion people impacted by sleep apnoea worldwide. But with only ~20% of these sufferers being diagnosed, it should have a long runway for growth. 

More reading

• 2 of the best ASX tech shares to buy and hold until 2025
• 2 ASX shares I’d buy in a heartbeat
• 2 top ASX shares to buy for income and growth
• 5 quality ASX shares to buy in September
• The best ASX blue chip shares to buy after the market selloff

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 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 and ResMed Inc. 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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There are some very exciting ASX tech shares that are worth buying and holding until at least 2025.

Technology businesses have a strong operational advantage because the main element of the business is digital. It makes it a lot easier to expand quickly if a business can advertise and sell things digitally. Usually, tech businesses have lower operating costs compared to other industries as well. 

COVID-19 has completely changed the world. Technology businesses have seen the adoption of their services brought forward. I think that’s good news for top ASX tech shares like these:

Redbubble Ltd (ASX: RBL)

Redbubble operates two of the leading online artist marketplaces, Redbubble and TeePublic which have over 1 million independent artists. A number of products are sold through the marketplaces including apparel, stationery, housewares, bags, wall art and masks.

The ASX tech share had a really strong FY20. Marketplace revenue grew by 36% to $349 million and gross profit increased by 42% to $134 million. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew 141% to $15.3 million and EBITDA rose 358% to $5.1 million.

During the last quarter of FY20, marketplace revenue went up 73%, gross profit rose 88% and the business generated operating EBITDA of $8.4 million.

Redbubble is the type of business that can benefit enormously from network effects. The more artists it attracts, the more options there are available for potential buyers. If there are more buyers then it will encourage more artists to go to Redbubble and stay there. Recurring activity is good for profit margins.

The ASX tech share can expand into new product lines that could attract more growth. Masks was a key growth line after the launch in April 2020.

In FY20 it generated free cashflow of $38 million, compared to an outflow of $0.2 million in FY19. That means at the current Redbubble share price, it’s priced at 28x FY20’s free cashflow.

Excitingly, Redbubble revealed that July marketplace revenue grew by 132% and it saw similar sales levels in the first two weeks of August on a paid basis.

I’m not expecting the same level of growth all the way to 2025, but I believe Redbubble could keep capturing market share to 2025. It’s definitely one to watch in my opinion.

Pushpay Holdings Ltd (ASX: PPH)

I think Pushpay is a very exciting ASX tech share. It’s helping large and medium US churches to receive donations from their congregations.

The Pushpay technology allows churches to livestream to their congregations, which is a very useful tool in this COVID-19 era.

FY20 was a very strong year for Pushpay. It grew its total processing volume by 39% to US$5 billion and total customers rose 42% to 10,896.

The company boasted of an annual revenue retention rate of more than 100%, meaning existing customers are contributing more to Pushpay’s revenue than before.

The ASX tech share’s recent acquisition of Church Community Builder was a smart move in my opinion. It brought together two complementary businesses. Each business can advertise to the other’s customer base and Pushpay can take the combined offering to new customers.

I believe that Pushpay could continue to be a market-beating share because of how fast its margins are rising.

At 31 March 2019 its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin was 9%, it grew to 17% at 30 September 2019 and rose again to 22% at 31 March 2020. In FY20 the gross profit margin rose from 60% to 65%. If this scaling continues as it gets bigger then it could turn into a very impressive business. 

I think that Pushpay could be much more profitable by 2025 and that will flow through to profit growth which will hopefully lead to strong shareholder returns.

At the current Pushpay share price it’s valued at 35x FY21’s estimated earnings.

Foolish takeaway

Both Pushpay and Redbubble are exciting ASX tech shares and I believe they can deliver good returns over the next five years. I particularly like Pushpay at the current price, its profit margins could continue to grow strongly for a number of years as it becomes larger.

More reading

• 2 ASX shares I’d buy in a heartbeat
• Where to invest $20,000 into ASX shares right now
• Where I’d invest $20,000 into ASX shares right now
• Buy and hold these stellar ASX growth shares for 10 years
• 3 ASX shares for beginners to buy

Tristan Harrison has no position in any of the stocks mentioned. 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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