One of the main drawbacks of investing in ASX-listed stocks is the sheer lack of diversity present in the market. That might sound strange in a market with over 2,000 listed entities, but the fact is that close to 40% of the market capitalisation of the ASX is made up for four banks, two resources companies and some supermarket operators. But the comfort of Australian investors in higher risk, higher reward plays (maybe it’s something to do with investing in mining exploration stocks) has meant that early stage technology companies have found a home on the ASX in recent years….
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One of the main drawbacks of investing in ASX-listed stocks is the sheer lack of diversity present in the market. That might sound strange in a market with over 2,000 listed entities, but the fact is that close to 40% of the market capitalisation of the ASX is made up for four banks, two resources companies and some supermarket operators.
But the comfort of Australian investors in higher risk, higher reward plays (maybe it’s something to do with investing in mining exploration stocks) has meant that early stage technology companies have found a home on the ASX in recent years.
Two of the more promising ones also have the distinction of being founded and run by Australian entrepreneurs, and are worthy additions to any watchlist.
Mobilising freelancers on a global scale
Freelancer Ltd (ASX: FLN) is a technology company that performs a relatively simple function: it matches workers seeking short-term employment, with employers seeking short-term employees.
The speed and penetration of the internet has meant that jobs as varied as website development, graphic design, creative writing and even data entry can be listed by someone in one part of the world, and completed by someone on the other side of the planet.
But despite the relatively simple sounding business model, building the technology to support millions of Freelancers and tens of millions of micro jobs is daunting. Things like secure communication, trustworthy payment, dispute resolution and organising the site into a functional, logical layout as the number and complexity of jobs grows are all big tasks.
However, Freelancer has been managing this admirably, as has experienced double-digit revenue growth over the last year, with a similar result forecast this year. Freelancer earns revenues through tiered membership fees as well as by taking a small percentage of the final fee paid to Freelancers on its platform.
As with all technology companies in early stages, Freelancer is in an “arms race” to acquire users faster than competitors and create a profitable network effect. At last count, it has almost 16 million users though many of those were brought on to the platform by a string of acquisitions.
Some studies estimate that casual and freelance work only grow as technology improves and workers seek more flexible arrangements, and the dominant platform that serves this trend will reap handsome profits.
Big profits in little questions
Crowd Mobile Ltd (ASX: CM8) has a much shorter operating history, having only been listed since the beginning of this year. Broken down, the service offering of the company involves creating apps that answer questions or solve problems for consumers by outsourcing the inquiry to an expert to answer.
Anyone who has ever “Googled” the answer to a question knows the merits of this approach, but Crowd Mobile adds the extra credibility of having an expert give a tailored answer with a quick turnaround. For example, one of the companies mooted ideas is to offer an app that allows pet owners to ask basic veterinary questions for a fraction of the cost of taking their animal to an after hours vet surgery.
Crowd Mobile can then “clip the ticket” on the fee the pet owner pays for the answer. The company has developed Q&A style apps for nutrition, cooking, fashion, topical news and even spirituality and has a stated intention to continue to broaden its suite of services.
It may sound basic, but it was responsible for a staggering 5.7 million messages in the last year, and more importantly for a tech company, it is profitable when one-off costs are removed.
A major recent acquisition that will broaden its reach globally throughout Europe and Asia will likely be transformative for Crowd Mobile, and message volumes will also grow as the app suite is widened to other areas and customers become more familiar with the services offered by those apps.
And the winner is…
Tech companies may not be as simple to understand as your local bank or supermarket, but for those willing to put in the work, there are incredibly clever businesses listed on the ASX that are working towards having a significant position in global markets.
Both Freelancer and Crowd Mobile are attractive propositions, but Crowd Mobile’s prospects for more rapid growth in a less competitive field put it slightly in front in this particular race.
Motley Fool contributor Ry Padarath has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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 Bruce Jackson.