ASX tech shares could be the right place to look for opportunities in July 2021.
Technology companies can have a strong margin if the operating model is very scalable. A lot of software products can be replicated for a very low cost to the company, but the ASX tech share can still charge its full price.
Here are two ASX tech shares to consider:
VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)
There are some businesses in the portfolio that are purely known for video games like Nintendo, Activision Blizzard, Take Two Interactive, Electronic Arts and Ubisoft.
Then there are others that produce a certain amount of earnings from video gaming-related activities such as Nvidia, Advanced Micro Devices, Tencent and Sea.
The video gaming sector has achieved revenue growth of 12% per annum since 2015. E-sports revenue has grown by an average of 28% per annum since 2015.
Competitive video gaming’s audience is expected to reach 646 million people globally in 2023, driven in part by a rising population of digital natives, according to the Newzoo Global Esports Market Report.
VanEck shared a number of impressive facts about the video gaming industry. There are now more than 2.7 billion active gamers worldwide. The video game business is now larger than both the movie and music industries combined, making it a major industry in entertainment.
E-sports is considered the world’s fastest-growing sport. The top e-sports tournaments are drawing crowds rivalling the World Cup (soccer) and the Olympic Games.
This ASX tech share has an annual management fee of 0.55%.
Kogan.com Ltd (ASX: KGN)
Kogan is an e-commerce business that sells a lot of different things through its website like appliances, electronic devices, clothes, drones and sporting goods. Some of the other things sold through the website includes insurance, superannuation and credit cards. The Mighty Ape acquisition in New Zealand gave it international growth potential and diversification.
The Kogan share price has fallen 41% over the last six months, meaning the price is now substantially cheaper.
Kogan has been working through excess inventory that was built up in response to its very quick growth. It’s getting through that inventory by increasing promotional activity, which is leading to lower near-term gross margins and higher near-term marketing costs.
In FY21 it’s expecting to report adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of between $58 million to $63 million.
But the ASX tech share’s leadership are confident about the future. Kogan said:
The board looks to the future with confidence as the business has invested in key strategic initiatives and has a strong level of in-demand inventory heading into the first half of FY22 while observing price inflation through global supply chains. The initiatives that the company has put in place to address the rapid scaling of a large e-commerce company are expected to drive continuous customer experience improvements in FY22.
According to Commsec, the Kogan share price is valued at 24x FY23’s estimated earnings.