There are a number of exciting ASX tech shares that might be interesting to think about for the long-term.
Technology businesses have a few inherent advantages. For example, most technology businesses can offer their software with very little variable costs – it doesn’t cost much to replicate software for the next customer – leading to rising profit margins with new customers.
VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)
This is an exchange-traded fund (ETF) that gives investors exposure to a portfolio of some of the largest companies that are related to video game development, e-sports and related hardware and software across the world.
And it is a global ASX share. There are nine countries that have a weighting of more than 1%: the US (38.6%), Japan (20.6%), China (18.5%), Singapore (7.2%), South Korea (5%), Sweden (3.7%), France (2.5%), Taiwan (2.3%) and Poland (1.5%). The US is still the biggest weighting, but it isn’t has high as some other ETFs.
You may recognise some of the biggest positions in the portfolio with some of the world’s leading gaming-related businesses: Nvidia, Tencent, Sea, Advanced Micro Devices, Nintendo, Activision Blizzard, Netease and Electronic Arts.
It has an annual management fee of 0.55%, which is cheaper than plenty of active fund managers.
There has been sustained revenue growth in the gaming industry. Since 2015, e-sports revenue has grown by an average of 28% per year and overall video gaming revenue has increased by 12% per annum.
E-sports have opened up several other potential revenue streams for the relevant businesses – game publisher fees, media rights, merchandise, ticket sales and advertising.
Audinate Group Ltd (ASX: AD8)
Audinate’s product called Dante, which is all about making the lives of audio professionals easier.
The ASX tech share explains that audio systems ranging from small systems for modest houses of worship and conference rooms up to massive rock tours and stadiums all require connections between microphones, mixers, processors, amplifiers and speakers. Traditionally, that meant long runs of specialised analog cables that are heavy, cumbersome to maneuver and dedicated to only a single type of signal going to a single device at a time.
Dante replaces all of those connections with a computer network over slender ethernet cables.
Audinate’s systems have very attractive uses.
COVID-19 caused a lot of disruption to large events, which affected Audinate’s shorter-term revenue. But the business is now seeing a recovery. In the third quarter of FY21, it generated US$7 million of revenue which was up 31% year on year.
The period benefited from channel fill of newly released Bluetooth and USB-C AVIO adaptors, as well as an increase in orders from customers managing global supply chain concerns.
Compared to the first half of FY21, there has been continued strengthening of chips, cards and modules revenue.
However, the company did say that it’s continuing to watch global supply chains for potential negative impacts on both its customers and the company itself, which may constrain near-term revenue and growth. However, it’s working with its partners to mitigate any challenges and expects uncertainty to resolve as 2021 continues. Management said that they are very confident about the long-term outlook of the business.