ASX tech shares could be the right place to look for strong opportunities with good growth potential.
Technology companies typically have higher gross profit margins than 'normal' businesses because of the offering, which is often intangible. It's very easy to transmit a digital service than ship a physical couch.
These two ASX tech shares could be long-term opportunities:
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Xero Limited (ASX: XRO)
Xero has become one of the world's largest accounting software companies.
It has a very strong market position with small and medium businesses in Australia and New Zealand, with 1.1 million and 446,000 subscribers respectively.
But it's also growing at a very solid pace in other areas around the world. For example, in the UK it had 720,000 subscribers at the end of FY21. In North American it had 285,000 subscribers and in the 'rest of the world' it had 175,000 subscribers.
Xero has a very high gross profit margin. In FY21 it had risen to 86%, up from 85.2% in FY20.
Its subscriber value and revenue numbers continue to grow each year. In FY21, it saw 18% revenue growth to NZ$848.8 million. The annualised monthly recurring revenue (AMRR) rose 17% to NZ$963.6 million. The total lifetime value of subscribers increased 38% to NZ$7.65 billion.
In FY21, the ASX tech share generated free cashflow of NZ$56.9 million despite all of the investing it's doing.
Xero says that it will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash generated to drive long-term shareholder value.
Betashares Nasdaq 100 ETF (ASX: NDQ)
This exchange-traded fund (ETF) is a portfolio of 100 of the largest non-financial businesses on the NASDAQ, which is a stock exchange in the US.
It happens to be the home of many of the world's biggest tech companies, which means it owns a number of strong global tech companies with very resilient economic moats.
Betashares Nasdaq 100 ETF has holdings like Microsoft, Apple, Alphabet (Google), Facebook, Amazon. It would be a hard job for any business to try to disrupt these juggernauts.
Microsoft has a suite of strong offerings for clients and consumers like its Office tools, Outlook email, LinkedIn and Xbox. Apple has a big market share of smartphone hardware and services, whilst Alphabet is in the smartphone world, online video, search and so on.
The Betashares Nasdaq 100 ETF also has numerous other businesses in the portfolio that are among the global leaders at what they do. Businesses like PayPal, Netflix, Adobe, PepsiCo, Costco, Moderna and Intuit are just a few of the other names in the portfolio.
As a group of businesses, this ETF owns many competitively advantages businesses. This has shown up in the net returns of the ASX tech share, with an average return per annum of 27.2% over the last five years. But past performance is no guarantee of future performance.
