ASX tech shares could be the place to look for long-term growth ideas.
Technology companies have inherent advantages compared to some sectors because of how relatively little it costs to sell a new piece of software to a customer. That can lead to higher profit margins for the business over time once they reach a certain size.
Some businesses have large, long-term goals where they hope to win more market share and become bigger companies.
Here are two to think about:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is a business that is helping large and medium US churches turn digital.
It offers a number of different services. Pushpay processes billions of dollars of digital donations for churches in the US. The company is now looking to expand into the Catholic segment.
Pushpay also offers a number of tools for churches. It offers a livestreaming service so people can stay connected with the church, even in this era of COVID-19. The ASX tech share also offers things like donation tracking, community communication and church administration.
Pushpay has been proving its scalability with rising profit margins. In FY21, Pushpay operating revenue went up 40%, whilst earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) went up 133% and net profit jumped 95%.
The business is seeing even faster growth of operating cashflow, which increased by 145% to US$57.6 million in FY21. It used the money that year to fully repay its bank debt. Management said its positive cashflow provides flexibility, as it continues to assess further potential strategic acquisitions that broaden Pushpay’s current proposition and add significant value to the business.
Pushpay is expecting further operating leverage to accrue as revenue grows and expense growth remains limited.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is one of the leading online retail businesses on the ASX.
It sells many thousands of products through lots of suppliers. The products are shipped straight from the suppliers to customers, which makes the delivery quicker. It also means Temple & Webster doesn’t need to hold (as) much inventory.
The ASX tech share is planning to invest heavily to capture the large market opportunity that is presented by the growth of online shopping.
It is focusing on advertising, increasing its product range, expanding into new categories, investing in its shopping experience and improving its business to business offering and sales.
Temple & Webster pointed out that more than 20% of furniture and homewares was bought online in the US during 2020. The company believes that Australia is following the same trajectory. It estimates that in 2020, around 9% of furniture and homewares were bought online in Australia, almost doubling from 5% bought in 2019. Online penetration in both markets is expected to increase significantly.
As it gives bigger, it’s expecting scale benefits such as improved supplier terms, a slowing investment in fixed costs and a higher percentage of exclusive products with higher gross profit margins.
It’s expecting a low EBITDA margin over the next couple of years, but then could achieve a higher margin than many of its comparable offline peers over the long-term.