May 2021 could be a good month to look at some ASX tech shares.
There are lots of high quality options available to Aussie investors. Some of them have been sold down in recent months.
These two potential investments could be ones to think about:
VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)
This exchange-traded fund (ETF) is all about the video gaming and e-sports industry.
The video gaming industry has achieved 12% average revenue growth per annum since 2015. E-sports in-particular has grown strongly with revenue growth of 28% per annum since 2015.
VanEck says there’s now more than 2.7 billion active gamers worldwide. The video gaming business is now larger than both the movie and music industries combined, making it an important industry in entertainment.
There’s a lot of interest when it comes to watching e-sports, with the biggest tournaments getting crowds that aren’t far off World Cup football and the Olympic Games numbers.
The Asia Pacific region is forecast to generate game revenue of US$78.4 billion in 2020, accounting for 49% of the global games market. The Middle East and Africa region is expected to be the fastest growing games market in 2020, growing 14.5% year on year to US$5.4 billion.
E-sports has created new potential revenue streams with game publisher fees, media rights, merchandise, ticket sales and advertising.
This ETF has plenty of quality businesses with good growth potential in the gaming space such as Nvidia, Tencent, Advanced Micro Devices, Sea, Nintendo, Activision Blizzard, Netease and Take Two Interactive Software.
The management fee cost is 0.55%, which is cheaper than many active fund managers.
Temple & Webster Group Ltd (ASX: TPW)
This ASX tech share is one of leading online retailers of furniture and homewares in Australia.
It has over 200,000 products on sale from hundreds of different suppliers. It operates with a drop-shipping model where products are sent directly to customers by suppliers. This means that Temple & Webster can have a larger product range, have faster delivery and it reduces the need to hold inventory.
Temple & Webster is going to invest heavily for growth to capture market share to generate longer-term returns. One of the main things it’s going to do is build strong brand awareness to achieve national brand status within the next three years with a high level of marketing to drive both first time and repeat customers.
It’s expecting the earnings before interest, tax, depreciation and amortisation (EBITDA) margin to be in the 2% to 4% range during this period.
After that, increased scale should come with operating leverage and higher levels of profitability. This should mean it can achieve better margins with improved supplier terms, more repeat customers (which will reduce marketing costs), a slowing of investment in fixed costs and a higher percentage of exclusive products with higher gross margins.
Longer-term profit margins are expected to be higher than many comparable offline peers.
Where to invest $1,000 right now
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd and VanEck Vectors ETF Trust - VanEck Vectors Video Gaming and eSports ETF. 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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