A wide array of ASX tech shares suffered a sell-off during 2022 as inflation and rising interest rates pulled down asset values.
It's true that a higher interest rate is meant to hurt share prices. As billionaire Ray Dalio once said about interest rates:
It all comes down to interest rates. As an investor, all you're doing is putting up a lump sum payment for a future cash flow.
However, these businesses are the same companies that they were at the start of the year. The main thing that has changed is that investors can now buy them at cheaper prices. So I think that investors are spoiled for choice.
Here are three that could continue to do well, even if the global economy goes through a tough time in the short term.
Xero Limited (ASX: XRO)
Xero is a leading cloud accounting software business. According to the recent Xero FY23 half-year result, it has 3.5 million global subscribers (this was a 16% year-over-year increase).
Despite the growth that Xero continues to achieve, the Xero share price has fallen by around 50% in 2022 to date.
Not only are subscribers growing, but how much it's making from those subscribers is rising too. HY23 average revenue per user (ARPU) increased by 13% to $35.30, which helped annualised monthly recurring revenue (AMRR) rise by 31%.
With a gross profit margin of 87%, the business is experiencing rapid gross profit growth. The business is directing a large part of this to marketing as well as product design and development expenses.
I think we may start to see the underlying profitability of Xero come through in the next couple of years as the percentage of revenue that the ASX tech share spends on growth reduces. Xero's HY23 free cash flow jumped 145% to $15.5 million.
VanEck Video Gaming and Esports ETF (ASX: ESPO)
This is an exchange-traded fund (ETF) focused on video gaming and e-sports businesses around the world.
For people who know a bit about video gaming, some of its biggest holdings may be recognisable: Nvidia, Activision Blizzard, Nintendo, Advanced Micro Devices, Roblox, Tencent, Electronic Arts, Take-Two Interactive Software, and Bandai Namco.
The VanEck Video Gaming and Esports ETF has dropped by around 30% since the start of the year. But I'm not sure that the demand for video games will drop that much. I'd guess younger people will continue to want to spend some of their discretionary income on games and consoles.
E-sports is an exciting area of growth. VanEck-sourced stats suggest that e-sports revenue has grown by an average of 28% per annum since 2015. Global e-sports audiences are growing and this is helping unlock new revenue such as new potential revenue streams from game publisher fees, media rights, merchandise, ticket sales, and advertising.
Audinate Group Ltd (ASX: AD8)
This ASX tech share provides the Dante system — advanced audio and visual media equipment that helps simplify digital media setup and usage. The company has a strong presence in the professional audio sector and now it's trying to offer a full package with video as well.
Audinate wants to grow in areas such as live venues, broadcasting, corporate board rooms, and university lecture spaces.
According to Audinate sources, the professional AV industry is expected to grow 11% in 2022 and hit a new high-water mark of $263 billion globally. It's estimated the industry will grow by nearly 50% over six years to $351 billion in 2027.
The company has a focus on significant traction in the video field, including revenue of at least US$3 million in FY23.
The recovery from COVID, as live events resume, could be a boost for the Audinate share price in 2023. The Audinate share price is down around 20% since August 2022.
