So far, 2021 has been a frustrating year for shareholders of ASX tech company Pushpay Holdings Ltd (ASX: PPH). Investors would have been hoping for a repeat of last year, in which the online payment platform's shares gained around 80% and even briefly touched an all-time high price of $2.272.
But instead, the company's shares have been trading more or less sideways. At their current price of $1.54, they are down about 13% year-to-date. The closest they've come to breaking through the psychological $2 barrier was in early April when they rose as high as $1.91.
Let's take a look at what may be driving this lacklustre share price performance and see if Pushpay can turn it around over the second half of the year.
Image source: Getty Images
Company Background
First, a little background information on Pushpay.
The New Zealand-based company develops software applications for church groups, with a particular focus on the US market. Its software platform provides church leaders with the digital communication tools required to boost engagement. In addition, it builds a sense of community amongst their congregation. However, its real selling point is its ability to facilitate online cash donations.
Pushpay's software allows churches to monitor how much individuals are donating. The software also offers a suite of applications that can help encourage higher levels of giving. It also produces insightful reporting, which can help churches run more targeted money-raising campaigns.
Recent financials
Pushpay released its results for the full year ended 31 March 2021 just last week. In the announcement, the company reported total revenues of US$181 million (an uplift of 39%). Pushpay also reported a total net profit of just over US$31 million (an increase of 95%). The relatively bigger jump in the company's bottom line was due to improvements in both gross margin and operating leverage.
Gross margin expanded by 3 percentage points during the financial year, from 65% to 68%. And while the company's operating revenue increased by 40%, total operating expenses increased by just 9%. Surprisingly, Pushpay anticipates operating leverage to increase even further in the coming years as the business continues to scale up.
The Pushpay share price
Despite delivering strong financial results at the upper end of its previously issued earnings guidance, the Pushpay share price has barely budged. Since the release of its annual report, Pushpay shares have edged up just 3%.
It's hard to say exactly what is driving Pushpay's poor share price performance. However, there are a few macroeconomic factors that could be having an impact.
Inflation fears in the US – Pushpay's key market – have sparked continued rounds of global selloffs of growth shares. This is because growing companies' valuations are mostly based on expectations of future earnings – the idea being that they will eventually "grow into" their lofty valuations. However, when there are high rates of inflation, the value of those future earnings can begin to erode.
Secondly, many tech shares made huge gains last year. On the ASX, under-the-radar tech companies like Megaport Ltd (ASX: MP1) and Nitro Software Ltd (ASX: NTO) surged to new highs. This was because they tailored their product offerings to support companies adapting to lockdowns.
But as global economies open up again, there has been a cyclical shift out of growth companies – particularly tech shares like Pushpay – and towards value stocks. These include mature companies that were beaten down during COVID-19 like resources giants Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP). These companies also benefit from the increase in commodity prices caused by inflation.
