WAAAX shares have been the favourites of ASX investors in recent years. Consisting of Wisetech Global Ltd (ASX: WTC), Afterpay Ltd (ASX: APT), Altium Limited (ASX: ALU), Appen Ltd (ASX: APX), and Xero Limited (ASX: XRO), WAAX shares are Australia’s equivalent to the United States’ FAANG stocks.
The coronavirus pandemic has had a mixed impact on WAAAX shares. While some benefitted from the social changes spurred by the pandemic, others faced headwinds. So what’s next for WAAAX shares?
Logistics technology gaining momentum
Wisetech is in the logistics business, supplying a software platform to manage supply chains. More than 17,000 logistics organisations use Wisetech’s solutions for freight forwarding, customer clearance, warehousing, tracking, and tracing.
Despite the disruptions to the industry caused by COVID-19, Wisetech’s revenue increased 23% in FY20.
Due to the complexity of the global logistics market, integrated software takes time and expertise to develop. Logistics service providers are moving away from in-house systems and towards commercial software that provides economies of scale with development, upgrade, and maintenance costs spread across many customers.
Wisetech has worked to standardise global variations in freight forwarding into a single modular product that consolidates data and automates workflow. Since listing on the ASX in 2016 Wisetech has completed over 40 acquisitions, providing it with a unique footprint in the global market.
Although Wisetech boasts all 25 of the world’s largest global freight forwarders as customers, it says it is still in the early stages of market penetration. Wisetech has been gaining momentum and says it is well positioned to transform the US$9 trillion global logistics market.
Buy now, pay later booms
Afterpay was the star performer of the WAAAX shares in 2020 with the Afterpay share price increasing a staggering 289%. The buy now, pay later (BNPL) provider now boasts a market capitalisation of more than $33 billion. The company has benefitted from the shift to online shopping and digital payment methods as well as an increased focus on budgeting in the wake of the pandemic.
In November 2020, Afterpay exceeded $2 billion of global sales, more than double that of November 2019.
Afterpay boasted 11.2 million active customers at the end of the first quarter of FY21, a 98% increase on the prior corresponding period. This included 6.5 million customers in the United States, a key growth market for the company.
Underlying sales in the US overtook those in the ANZ region for the first time in November 2020 at $1 billion versus $0.9 billion for ANZ.
The UK is another key market that Afterpay is seeking to grow as the BNPL sector matures. A $786 million capital raising conducted in July 2020 provided the company with funds to accelerate investment in existing regions and expedite expansion into new markets in 2021.
Momentum returning for Altium
Altium provides printed circuit board (PCB) design software. PCBs are a key component of electrical devices, used in everything from mobile phones to cars. Altium is seeking to leverage society’s increasing reliance on electronic devices via domination of the PCB design industry.
Altium’s revenue grew by an impressive 10% in 2020, however, this was below the rate of growth seen in previous years. Nonetheless, Altium has recorded 9 consecutive years of double digit growth and expanding margins.
The macro environment remains challenging, with the first half of FY21 impacted by COVID. Altium says signs of momentum are coming back for the second half and has confirmed guidance of US$200 million to US$212 million in revenue in FY21.
Long-term AI trends remain positive
Appen is due to report its financial results for the year ended 31 December 2020 next month. The artificial intelligence (AI) company reported strong growth in 1H20 despite the impacts of COVID on new business development and renewals.
Third quarter revenue was lower than expected, however Appen’s major customers released strong third quarter results and online advertising bounced back. While the fourth quarter improved on the third, Appen’s usual ramp up seen towards the tail end of the year failed to eventuate.
COVID has disrupted the priorities and activities of Appen’s customers, with the result that Appen has revised its full year earnings before interest, tax, depreciation and amortisation (EBITDA) guidance to $106 million—$109 million. Appen says long-term trends for the business remain positive, as spending on artificial intelligence is growing at 28% annually and is expected to accelerate in a post-pandemic environment. The company expects these structural tailwinds to support a return to strong growth rates in 2021.
Cloud accounting continues to grow
Xero reported a strong performance in the six months to 30 September 2020. Despite challenging market conditions, operating revenue increased 21% year-on-year, while net profit after tax was up by $33.2 million.
Xero provides a software-as-a-service accounting system for small and medium businesses. The company has been focused on helping customers navigate through COVD-19 by enhancing its platform in response to government initiatives and stimulus benefits.
Going forward, Xero is looking to drive the uptake of cloud-based accounting and scale globally. Xero estimates cloud accounting has been adopted by more than 50% of its addressable market in Australia and New Zealand, but less than 20% across the rest of the world.
With liquid resources of $723 million, Xero is well positioned to fund future growth. The continued uncertainty created by COVID has prevented Xero from providing further commentary on its expected full year performance.
What’s next for WAAAX?
WAAAX shares reported mixed performances in 2020, but are anticipating positive results in 2021. Afterpay has shone recently but Wisetech, Altium, Appen, and Xero also have plans for growth in place. As the global economy recovers from the ravages of the pandemic, investors will be watching WAAAX shares with interest.
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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 Appen Ltd and Xero. The Motley Fool Australia owns shares of AFTERPAY T FPO and WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.