3 tech stars you might never want to sell

For a long time, most investors could name a range of small and micro-cap speculative mining stocks with huge potential. However, with the end of the mining boom, this industry knowledge is waning, and knowledge of the tech sector is on the rise.

As with speculative mining stocks, new age tech stocks require investors to look past the “blue sky” story, and one of the best ways to do this is by looking at the strongest arguments in favour of, and against, the business.

Here is that process, applied to three of the most newsworthy tech stocks on the ASX.

REA Group Limited (ASX: REA)

Pros: REA Group recently outlaid $761 million for iProperty Group, which has replicated its successful real estate classifieds model in several markets in south east Asia.

It also has a 20% stake in a property portal in the largest housing market in the world, the United States, through an investment in Move, which owns the portal. These overseas websites represent leverage to some of the most desirable economies in the world.

Cons: REA Group might be more globally focussed these days, but the fact is, Australia still accounts for the lion’s share of revenue and profits. For example, iProperty only had $32 million in revenue for 2015, compared to REA Group revenue of $522 million. In addition, Move is a distant second in the United States market compared to its key competitor.


Pros: Xero has the potential to be a global leader in the cloud-based accounting software market. In its corner, Xero has a strong track record of becoming number one in the markets it chooses to compete in, beginning with New Zealand, then Australia, and more recently, the United Kingdom.

It also has the strong financial backing from Silicon Valley heavyweights like Accel Partners, which has a track record of backing global behemoths like Facebook, Atlassian, Spotify and Dropbox early on.

Cons: Xero has most recently targeted the huge United States market as its latest battleground. However, in its way is a well funded and entrenched competitor, Intuit, which has a legacy desktop-accounting package, as well as a newer cloud-accounting system.

Subscriptions for Intuit’s QuickBooks Online product dwarf Xero subs in the United States, and it has pivoted to selling cloud accounting packages much faster than other legacy providers. In addition, Xero has been consistently loss making, as its land grab continues to take huge chunks out of the cash balance.

Reffind Ltd (ASX: RFN)

Pros: Reffind is the newest and smallest ASX stock on this list by a long way, but it is no less ambitious. It is aiming to revolutionise how companies interact with their staff using the power of the smartphone.

Its suite of products have evidently proved impressive so far, with leading construction companies, law firms and major franchisees of global brands like McDonalds all signing up. In addition, it has a simple, recurring monthly billing model, which scales up and down depending on the size of the company.

Cons: Reffind is burning cash faster than it can earn it currently, meaning a capital raising which could dilute existing shareholders could occur soon. In addition, it remains to be seen how unique the product offering is, with some analysts believing the products offered by the company could be replicated by a motivated competitor.

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Motley Fool contributor Ry Padarath owns shares of Xero. 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 owns shares of Xero. 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.

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