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Two exciting ways to play the Aussie tech sector

You overhear the strangest things in lifts.

Yesterday, for instance, two teenage girls were chatting loudly in the lift in my apartment building. It was “Face-y” this and “Face-y” that. Only when one of them said (well, shrieked), “I could never post that on Face-y” did I understand.

Australian for tech

More than 50% of Australians — nearly 12 million people — use Facebook. It’s the number-one social media site countrywide, with Google’s Youtube running a close second and LinkedIn a distant third, according to data compiled by Adcorp.com.au in January. Of course, Facebook, Google, and LinkedIn are all listed on the Nasdaq in the U.S.

But such glimpses into Australians’ enthusiastic adoption of social media and technology more generally gets an investor’s mind working on local ways to play the phenomenon. Looking beyond the marquee names known to all, from Telstra (ASX: TLS) to Vocus (ASX: VOC), there are two under-the-radar ASX companies operating within the tech space that could whet local investors’ appetites.

Idea #1: NextDC 

Headquartered in Brisbane, NextDC Limited (ASX: NXT) is an early-stage company looking to capture a piece of the “big data” pie. It operates data centers, providing digital storage and server space to small and large companies, and enabling Australian and Kiwi clients to take their operations to the cloud. As such, NextDC is one of the ASX’s few pure plays on cloud computing.

While NextDC is not yet profitable, recording a loss of $10 million for the 2012 financial year, its top line is growing incredibly quickly. This includes a whopping 288% increase in revenue for the first half of its 2013 financial year. In this same period, the company saw customer growth topping 100%.

Idea #2: Wellcom Group

Wellcom Group Limited (ASX: WLL) is a less direct tech play, but still operates within the larger tech sector. A Melbourne-based marketing technology services agency, Wellcom helps other companies to manage their digital assets. Among its leading products is an SAS (software-as-a-service) program called Knowledgewell, used by a diverse range of companies. Blue chip clients already include National Australia Bank, retailer Kathmandu, and Jetstar.

What’s more, Wellcom Group has recently announced growth initiatives, including keeping an eye on possible acquisitions, and has also announced its development of another software product, called Canopy, “a totally new software designed for retailers, distributors and manufacturers alike,” which will be deployed throughout 2012 and 2013.

With a market cap nudging just $100 million, plus $15 million in cash and no debt, Wellcom Group should be able to capitalise on these initiatives.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.

 

 

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