How have ASX technology shares performed during the August 2021 earnings season?

It's been a wild ride for some ASX technology shares in FY21.

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ASX technology shares have had a mixed run this earnings season. Investors have been quick to distance themselves from companies perceived as underperforming. Equally, they've flocked to those showing signs of outperformance.

The ASX's most well-known tech shares are the WAAAX shares — the Australian equivalent to the United States' FAANG stocks. WAAAX shares comprise WiseTech Global Ltd (ASX: WTC), Afterpay Ltd (ASX: APT), Altium Limited (ASX: ALU), Appen Ltd (ASX: APX), and Xero Limited (ASX: XRO).

All except Xero reported their full-year results in August. Xero's financial year ends 31 March 2022. 

How have ASX technology shares performed against the market?

The ASX share market has climbed steadily in 2021, with the All Ordinaries Index (ASX: XAO) now up 12% from 1 January.

But the performance of ASX technology shares has varied greatly. The WiseTech share price is up 59% for the year, and shares in Altium are down 6%. The Afterpay share price has lifted 9% in 2021, while the Appen share price has slumped 59%. The Xero share price is close to the levels seen at the start of the year.

The share price reactions to company results demonstrate how technology is by nature a more volatile sector of the market.

Who are the tech winners this earnings season? 

The Wisetech share price shot up 28% in a day after the release of its full-year results last month. Total revenues increased 24% to $507.5 million. This was at the top end of WiseTech's guidance range of $470 million to $510 million.

The company's earnings before interest, tax, depreciation and amortisation (EBITDA) grew 63% to $206.7 million thanks to a recovery in global trade. The logistics software provider also reported a 101% increase in underlying net profit after tax (NPAT), which reached $105.8 million.

It appears disruption in the freight industry is driving demand for integrated global software solutions like WiseTech'sCargoWise platform. The company advised that growth in recurring revenue was being driven by the CargoWise platform, which has delivered compound annual growth of 31% in recurring revenue between FY16 and FY21. 

Afterpay was another big winner this earnings season, reporting a 90% increase in underlying sales in FY21. Although the buy now, pay later behemoth has yet to turn a profit, it is set to be taken over by US fintech Square Inc (NYSE: SQ) in a $39 billion deal announced in July.

Afterpay shares jumped 32% in the two days following the announcement and have traded at around $130 in the period since.

During FY21, approximately 25,000 customers joined Afterpay's platform each day. Over the full year, customer numbers increased 63%, Afterpay reporting 16.2 million active customers at the end of FY21. Nonetheless, the company reported a statutory loss after tax of $159.4 million. 

And the losers? 

Altium shares dived at the end of August when the release of its audited accounts was delayed. The Altium share price fell more than 14% in a day to below $30 even as the software designer announced it had delivered on full-year guidance.

Over the full year, Altium reported revenue of US$191 million, representing growth of 16%. Profit after tax increased by 79% to US$35.3 million. Altium earnings per share (EPS) increased 78% to 26.89 US cents per share, and the company declared a dividend of 40 cents per share.  

Appen shares also fell on the release of half-year results, the Appen share price dropping more than 20% in a day. The artificial intelligence and machine learning company reported a 2% drop in revenues as customers allocated resources to non-advertising projects.

Appen's earnings were also impacted, with underlying EBITDA down 14.3% to $27.7 million, due to higher costs related to growth investments. Underlying NPAT fell 35% to $12.5 million due to increased amortisation associated with investment in product development.

The company declared an interim dividend of 4.5 cents a share, 50% franked. This is on par with the 2020 interim dividend. 

Looking ahead

WiseTech has provided guidance of $600 – $635 million in revenue in FY22, representing 18% – 25% growth compared to FY21. EBITDA of $260 – $285 million is forecast, representing 26% – 38% growth.

Altium is also predicting a return to strong pre-COVID growth in fiscal 2022. The company has provided revenue guidance of US$209 million to US$217 million (16% – 20% growth). Altium is continuing to target 100,000 subscribers by 2025, which it says will compel key industry stakeholders to support its agenda. 

Square's acquisition of Afterpay is expected to close in the first quarter of calendar 2022, with Afterpay shareholders to receive 0.375 shares of Square Class A common stock for each Afterpay ordinary share they hold.

Square will establish a secondary listing on the ASX following the acquisition, which will allow Afterpay shareholders to trade Square using CHESS Depository Interests.

In FY22, Afterpay plans to scale and unlock further growth opportunities as it expands its global footprint. North America is now the largest contributor to underlying sales, overtaking Australia and New Zealand. 

Appen reduced previous full year EBITDA guidance last month. It now expects EBITDA to be $81 million to $88 million. This is down from $83 million to $90 million guided in February, which Appen says is due to investment in product and market expansion.

Year to date revenue plus orders for delivery in FY21 totalled approximately $360 million in August. This was 10% above August 2020 guidance of $328 million, which was 79% of full-year 2020 revenue. Appen had no debt and a cash balance of $66 million as at 30 June 2021, leaving it well-positioned to grow in new markets and geographies.

The company said it was strongly positioned for the long term, set to benefit from industry tailwinds and the delivery of automation and scalability from its AI-enabled product suite. 

Motley Fool contributor Katherine O'Brien owns shares of Altium and Appen Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Altium, Appen Ltd, WiseTech Global, and Xero. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO, Altium, Appen Ltd, WiseTech Global, and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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