Many ASX tech shares have fallen heavily since the start of the year. However, I think this is opening up opportunities to buy these companies at better prices.
It’s understandable that the inflation environment is hurting the costs of some businesses. And higher interest rates can have a detrimental impact on the valuations of assets.
However, with how far the below ASX tech shares have fallen, I think these two ideas could be ones with good potential for the long-term:
Betashares Cloud Computing ETF (ASX: CLDD)
This is an exchange-traded fund (ETF) that aims to give investors exposure to businesses where a large part of their operations purely involves services or products that use cloud computing.
There are a total of 36 names in the ETF’s portfolio. Examples include DigitalOcean, Anaplan, Netflix, Dropbox, Box, Salesforce.com, Paycom Software, Digital Realty Trust, and Qualys.
The idea is that to be eligible for inclusion in the CLDD ETF portfolio, a company’s share of revenue from cloud computing services must meet a minimum threshold. It prioritises companies that generate the majority of their revenue from cloud-based services.
I do believe that there is a long-term shift to cloud computing services. But, the rising interest rate environment has led to the large sell-off of the CLDD ETF which has dropped 35% this year. I think this significantly lower price represents attractive value for the long-term.
TechnologyOne Ltd (ASX: TNE)
This ASX tech share provides global enterprise resource planning software and it’s steadily shifting its clients onto a cloud-based, software-as-a-service (SaaS) offering.
TechnologyOne says its future state business is expected to grow revenue at a rate of at least 15% per annum in the coming years.
The company boasts that the quality of its SaaS revenue is very high – it’s recurring in its contractual nature and it should be viewed with the very low churn rate of around 1%. It’s targeting that 95% of its revenue is recurring by FY27. Total annual recurring revenue (ARR) is expected to increase to at least $500 million by FY26.
It’s also expecting its profit before tax margin to increase from 31% in FY21 to at least 35% in the next few years.
Drivers of the increase of that profitability growth will be helped by the “significant” economies of scale benefits. Cost reductions will reflect the efficiencies from the transition to SaaS.
The company says it expects to double in size every five years. It’s also spending heavily on research and development, which will extend its Saas platform, while delivering on its artificial intelligence and machine learning.
Aside from the potential revenue and profit growth I’ve already written about, TechnologyOne also says the markets it serves are “resilient”. It provides “mission critical” software which is important for a company’s operations. The ASX tech share has also said that its 2022 pipeline is “strong”.
I think the TechnologyOne share price decline (of 23% in 2022), its international growth, and encouraging outlook in 2022 makes the business attractive to me at this lower level.