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WAAAX shares see mixed recovery from COVID-19

Early 2020 was all about ASX WAAAX shares. But since the onset of coronavirus, we haven’t heard as much from these former share market darlings. Afterpay Ltd (ASX: APT) seems to have eclipsed its fellow tech shares as its share price continues to hit new heights. The other WAAAX components, WiseTech Global Ltd (ASX: WTC), Altium Limited (ASX: ALU), Appen Ltd (ASX: APX), and Xero Limited (ASX: XRO), have had mixed performances. Although grouped together by the WAAAX acronym, these ASX tech companies have vastly different businesses. This means the COVID-19 pandemic is having different impacts on them. We take a look at the recent performance of the ASX WAAAX shares. 

WiseTech

The WiseTech share price is down 11.1% for the year and up 98.2% from its March low. WiseTech is a logistics software provider whose flagship platform, CargoOne, can be tailored for each customer’s supply chain. WiseTech’s platforms are used by customers to manage global customs requirements, compare freight rates, track transport, oversee warehousing, and book parcel shipping.  

WiseTech reaffirmed its FY20 earnings guidance for revenue of $420 -$450 million in April. The company said onboarding of new users has substantially offset expected disruptions from COVID-19. There has been no update on business operations since then, however founder Richard White sold 2,445,653 shares last month, netting some $46 million. 

Prior to the onset of coronavirus, WiseTech had been on an acquisition spree, snapping up some 15 companies in FY19. Earlier this month, WiseTech announced that it had renegotiated earnout arrangements for some acquisitions, removing $33.3 million of future contingent cash liabilities. Instead, $10.4 million in equity was issued, a cash payment of $1.7 million was made and $18.2 million of potential future equity earnouts remain. 

Afterpay 

The Afterpay share price is up 135% over the year and 673% since its March low. Afterpay is a well known buy now, pay later (BNPL) provider which boasts nearly 10 million customers across Australia and New Zealand, the United States, and the United Kingdom. Afterpay’s business has been accelerated by the shift to eCommerce resulting from the pandemic with underlying sales increasing 112% in FY20 to $11.1 billion. 

Afterpay took advantage of the rise in its share price to undertake a capital raising earlier this month. The BNPL provider raised $800 million via a placement and share purchase plan, with funds earmarked for investment in growing sales and global expansion. Afterpay says the pandemic has caused a shift towards online spending and focus on budgeting, as well as a greater aversion to traditional credit products. The company believes it is well placed to exceed its underlying sales target of $20 billion by the end of FY22. 

Altium

The Altium share price is down 4.6% since the start of the year and up 34.3% from its March low. Altium provides electronics design software for engineers who create printed circuit boards. Printed circuit boards are used in just about every electronic appliance – from cell phones and televisions to microwaves and digital clocks. Altium reported strong revenue growth of 10% in FY20 despite the challenging COVID-19 environment. 

Revenue grew to US$189 million thanks to a solid performance by core business units and key regions. The subscription base grew 17% to well over the company’s 50,000 subscribers target. Altium’s strategy of providing attractive pricing and extended payment terms to support customers during COVID-19 has been rewarded. This has driven volume and supports Altium’s pursuit of market dominance. 

Appen

The Appen share price is up 60% from the start of the year and 110% since its March low. Appen provides data used to build and improve artificial intelligence systems. The company collects and labels images, text, speech, audio, video, and other data which is used to train artificial intelligence products. Spending on artificial intelligence is growing at a compound annual growth rate of 36% according to Markets and Markets, which has resulted in a track record of high revenue and earnings growth for Appen. 

In 2019, Appen’s revenue grew 47% to $536 million, underpinned by demand from existing customers for existing and new projects. A substantial investment in sales and marketing was made in FY20 to lay the foundation for future growth. Appen is investing in sales teams to win new customers and diversify revenue, with a focus on the government and China markets. At the end of May, Appen advised that it expected the pandemic to have a negligible impact on business and reaffirmed its FY20 guidance of EBITDA in the range of $125 million to $130 million. 

Xero

The Xero share price is up 15.8% from the start of the year and 58% since its March low. Xero provides cloud accounting software to small and medium businesses. Xero’s financial year ends on 31 March, so its FY20 financial results did not see the impacts of COVID-19. Many of Xero’s small business customers are concerned about the impacts of the pandemic, particularly those in the tourism and hospitality sectors. Nonetheless, Xero added 467,000 subscribers in FY20, bringing total subscriber numbers to 2.285 million. Annual monthly recurring revenue grew 29% to $820.6 million leading to Xero’s first full year profit of $3.3 million after tax. 

Xero has a global footprint with significant numbers of users in Australia, New Zealand, the UK, and North America. Free cash flow increased to $27.1 million in FY20, equivalent to 3.8% of operating revenues. Xero had a net cash position of $111.5 million at 31 March 2020, up from $100.6 million at 31 March 2019. Xero’s strategic priorities are to drive the adoption of digital accounting and build for global scale and innovation. Trading in the first part of FY21 has been impacted by the COVID-19 environment and continued uncertainty means Xero has yet to provide guidance on FY21 outcomes. 

Foolish takeaway

Some WAAAX shares are adapting to COVID-19 trading conditions better than others. While Afterpay is benefiting from the shift to digital, Appen appears unaffected, and Xero’s small business customers are suffering due to lockdowns.

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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 and recommends Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of 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