From the dot com boom to recent advancements in driverless cars, information technology is a rapidly developing sector that continually changes the way we live.
The S&P/ASX 200 Information Technology Index (INDEXASX: XIJ) showcases some of the top tech companies Australia has to offer. Last year was an excellent year for the tech index, which printed a gain of 34%, well and truly beating the S&P/ASX 200 (INDEXASX: XJO)‘s return of 18%.
Below, we take a closer look at 3 ASX tech shares that are market leaders in their particular IT niche, and that I believe are solid buy-and-hold shares for the long term.
IRESS Ltd (ASX: IRE)
Active investors should be familiar with this one. IRESS is a platform used by many brokers to help clients facilitate transactions on the ASX. If you have a brokerage account with Commonwealth Securities, you will be able to access a version of IRESS if your account meets its requirements.
IRESS also has operations abroad in New Zealand, the United Kingdom (UK), South Africa, Canada and some of Asia.
Nothing screams buy now when looking at the financials of IRESS with just 5% growth on operating revenue and -5% net profit after tax (NPAT) being posted in its investor presentation for 2019. When adjusted for acquisitions NPAT grew 2%.
Despite the lacklustre financials, IRESS is widely accepted by the wealth management community as the ‘gold standard’ for executing trades within financial markets. Furthermore, IRESS offers another software package called Xplan that is used by financial planners and, again, is considered one of the market-leading software packages within this space.
Xero Limited (ASX: XRO)
Xero is an accounting software provider for small businesses. Unlike some competitors’ systems that are cumbersome and expensive, Xero is user-friendly and affordable. The company runs on a subscription model much like your favourite video streaming service.
The growth of Xero since its IPO back in 2013 has been phenomenal and it’s not slowing down. This is in part due to Xero’s significant expenditure on advertising and product development.
Xero’s interim financial report released last November posted an increase in operating revenue year-on-year of 32%. Australian subscription levels are up 28% compared to the same period last year and the UK’s up a whopping 51%.
REA Group Limited (ASX: REA)
REA Group is best known for its flagship product RealEstate.com.au, which is the most used property search engine in Australia. REA provides data about property to consumers, agents, advertises and property-related businesses.
In August 2019 REA Group reported that RealEstate.com.au experienced monthly user traffic of 76.8 million visits on its Australian site, 2.9 times higher than its nearest competitor. The group also reported its monthly searches were up 19% and the average time users spend on the mobile app was 4.7 times higher than its competitors.
The market for property search engines in Australia is well established, with REA Group’s RealEstate.com.au being the leader by a substantial amount. This sector is prone to new entrants due to the low barrier to entry for the product type, however, I do believe that RealEstate.com.au’s market share is safe. It’s all in the name.
Information technology is an exciting sector to invest your capital in. The nature of technology allows new businesses to scale their ideas into the market and disrupt competitors. The 3 companies mentioned in this article are well established within their niche, which provides investors with a degree of safety.
Whether you are a tech investor or are new to the sector, I believe IRESS, Xero and REA Group are great companies with large established user bases. Due to all 3 of these companies having already established strong market positions, I would consider a buy-and-hold of 3–5 years at least.
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Motley Fool contributor Jack Kaminski has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. The Motley Fool Australia has recommended IRESS Limited and REA Group 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.