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What’s next for WAAAX shares?

WAAAX shares were hammered in the March downturn. Since then, WAAAX share prices have recovered to varying degrees, with some seeing massive gains, while others have experienced more moderate share price recoveries. The coronavirus pandemic has had a mixed impact on these companies. Some, such as Afterpay Ltd (ASX: APT) have benefitted, while others, such as Appen Ltd (ASX: APX) have seen minimal impacts.

Let’s take a look at how WAAAX shares are performing and their outlook going forward.

WiseTech Global Ltd (ASX: WTC)

The WiseTech share price is up 77% from its March low of $10.48 but remains 36% below its high for the year of $29.44. The share price fell earlier this week when founder Richard White sold $46 million of WiseTech shares, cashing in on the share price recovery. WiseTech shares were trading as high as $38 last year before short-sellers took aim at the company, questioning its accounting methods. According to the Australian Financial Review, short-seller J Capital had previously estimated that insiders have sold $259 million worth of shares in WiseTech since it listed.

WiseTech had been reporting impressive rates of growth, driven by the company’s many acquisitions over recent years. In FY19 alone, WiseTech made 15 acquisitions across Europe, Asia, Australasia and the United States. In May, WiseTech announced it had agreed to replace cash earn-out payments with equity across 17 of its acquired businesses in order to strengthen its balance sheet and liquidity. Richard White has said the business continues to demonstrate resilience in the current environment. Digital transformations are expected to accelerate, driving demand for global technology and integrated platforms such as WiseTech’s CargoWise.

Afterpay Ltd 

The Afterpay share price has surged an incredible 600% since its March low of $8.90. Shares are currently trading at $62.24, surpassing previous highs. Demand for the buy-now-pay-later (BNPL) provider’s solutions has actually increased with the coronavirus-linked economic downturn. Last month Afterpay reached 5 million active customers in the US, with 1 million new customers joining the platform during the 10 weeks to 20 May. More than 15,000 US retailers are offering, or are in the process of offering, Afterpay to customers, with the company processing $2.4 billion in the year to Q3 FY20, a 354% increase over the same period in FY19.    

Tencent Holdings Ltd (HKG: 0700) became a substantial shareholder in Afterpay in May, giving a vote of confidence to the business model. Tencent’s Chief Strategy Officer, James Mitchell said Afterpay’s service “Aligns so well with consumer trends we see developing globally….we look forward to a deep and long-term business partnership between Tencent and Afterpay.” Afterpay has continued to grow throughout the pandemic, with March the company’s third-highest underlying sales month on record.

Altium Limited (ASX: ALU)

The Altium share price has gained 31% since its March low of $24.67 and is currently trading at $32.30. Although the share price has yet to regain its 2020 high of $42.63, the company is predicting growth in revenue over the full year, albeit at a level below recent analyst consensus. Historically, Altium closes a significant amount of its second-half business in the last 2weeks of June. As announced last week, this June the run-rate has been impacted by the recent lockdown in Beijing and COVID-19 infection rates in the United States.

Altium is seeing strong seat growth through its offering of extended payment terms to support customers during COVID-19. This will get the company close to or just surpass the key target of 50,000 subscribers. This strategy will, however, have a revenue impact. Although Altium is expected to deliver solid revenue growth it is set to land marginally behind recent analyst consensus. A market update of headline sales and revenue results for FY20 is expected early this month.

Appen Ltd 

The Appen share price has gained more than 100% since its March low of $17.14. Appen shares have surpassed previous highs and are currently trading at $34.45. The pandemic is expected to have a negligible impact on the company based on currently available information. Appen has also affirmed its full-year FY20 guidance. Revenue plus orders in hand for delivery were $350 million at May 2020. Full-year underlying EBITDA for the year ending 31 December 2020 is expected to be between $125 million–$130 million.

Appen operates in the high growth artificial intelligence space, providing essential data for AI development and maintenance. Global spending on AI systems is predicted to reach $97.9 billion in 2023, up from $37.5 billion in 2019. This gives a compound annual growth rate of 28.4% for 2018–2023. Appen grew revenue by 47% in 2019 thanks to strong organic growth. Existing customers are underpinning revenue growth with increased demand for existing and new projects. Appen has also made substantial investments in sales and marketing in FY20 to lay the foundation for future growth.

Xero Limited (ASX: XRO)

The Xero share price has gained 54% from its March low of $58.75. The share price has now surpassed previous highs to trade at $91.35. The accounting software company reported strong financial results for the New Zealand financial year ended 31 March 2020. Operating revenue grew 30% to NZD$718.2 million with subscriber numbers growing 26% to 2.285 million. Annualised monthly recurring revenue grew 29% to $820.6 million as a result of the increase in subscriber numbers. Xero saw its first full-year NPAT of $3.3 million in FY20. This was an improvement of $30.5 million from a $27.1 million loss in FY19.

While the WAAAx share performed strongly in FY20, New Zealand’s FY21 early trading has been impacted by COVID-19. Xero is vulnerable to the current economic downturn, due to holding many small and medium business customers.

CEO Steve Vamos said:

“Many of our customers and partnerships are having to adapt the way they operate while investing enormous effort to survive this difficult time. Helping them is our immediate priority.”

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Kate O'Brien owns shares of Altium and Appen Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium and Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, and WiseTech Global. 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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Kate O'Brien