The technology sector can be a fertile place to look for opportunities. ASX tech shares may be a good industry to look for good ideas.
Businesses in the tech sector may be able achieve good operating margins because of the intangible nature of it. That intangible part also means that businesses can grow quickly because they can very easily replicate that software.
Here are two ASX tech shares to consider:
ELMO Software Ltd (ASX: ELO)
ELMO Software is a business that offers cloud-based services for small businesses and mid-market organisations to manage people, processes, pay and expenses. It operates a software as a service (SaaS) model across Australia, New Zealand and the UK.
In FY21, it generated revenue of $69.1 million, which was an increase of 38.1%. Its annualised recurring revenue (ARR) increased by 52.1% to $83.8 million.
The last financial year saw the business generate positive earnings before interest, tax, depreciation and amortisation (EBITDA) of $0.4 million, up $3.3 million from the prior year. That’s after spending a lot on growth.
ELMO Software sometimes launches a new module for businesses to utilise on top of existing services, which can increase the value to the customer, and increase the revenue from that customer. It recently launched COVIDsecure, which enables businesses to record, monitor and report on their employees COVID vaccination and test status.
Despite the growth and progress that ELMO Software is making, the ASX tech share has seen its share price fall by 32% since the start of the year.
Management say that returning business confidence and the increase in remote based working is driving the adoption of cloud-based business tools, including HR technology. The company said FY22 is shaping up to be a good year for ELMO, across both the mid-market and small business segments.
In FY22 it’s expecting to report revenue of at least $90.5 million and EBITDA of at least $1 million. The ARR is expected to reach between $105 million to $111 million.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara is another ASX tech share that could be worth looking at. It is in the healthcare space, providing breast screening software.
The company has also started making connections in the lung cancer screening space. It has announced partnerships with other leading organisations that can improve its offering and effectiveness including RevealDx and Natera.
Volpara’s breast screening segment is what is currently driving the business revenue higher. It has reached coverage of 33% of US women being screened. The company measures its average revenue per user (ARPU), which it sees as an important driver of future growth. In the first quarter of FY22, the ARPU was US$1.42. The average ARPU in the first quarter was US$1.55. ARPU of up to US$5.87 was achieved at some sites.
Its SaaS church continues to remain low, whilst the gross profit margin is above 90%.
Volpara’s ARR has reached US$19.2 million in the first quarter. In FY22 its focus is risk and genetics. The company said that US states moving more strongly in that direction will continue to help drive and accelerate growth in the Volpara business at very little additional cost to the business itself.