I believe that the two ASX tech shares I’m going to cover in this article are worth owning for their potential growth over the next decade.
Investing in businesses should include thinking about how much growth a business can generate over 10 years. You don’t necessarily have to own it for a decade, but you’re more likely to pick a good idea if you can see that it has many years of growth ahead of it, rather than stagnation or even decline.
That’s why I really like these two businesses:
Pushpay Holdings Ltd (ASX: PPH)
Digital giving business Pushpay has a very promising future. The company has a long term goal of US$1 billion of annual revenue, which would make it a much larger business than it is today if it were able to achieve that goal considering its FY21 half year result
saw operating revenue of ‘only’ US$85.6 million.
When you combine that revenue growth with rapidly rising margins, I think that Pushpay could be a long term winner – its EBITDAF margin (EBITDA explained, the F stands for foreign currency) went up from 17% to 31% in the FY21 interim report.
Pushpay can lengthen its growth runway by targeting smaller churches in the US, not just the large and medium ones. It could also expand to other countries and other religions.
I also believe that the ASX tech share’s existing revenue is more defensive than what some investors give it credit for. People usually make annual donations to their church, not a once-in-a-lifetime donation.
The Pushpay valuation looks very reasonable when you look out a year or two. It’s valued at 24 times the estimated earnings for the 2023 financial year.
Redbubble Ltd (ASX: RBL)
Redbubble is another digital business that’s making the most of this difficult period of time. It’s an online marketplace that sells a wide variety of artist-produced products like clothes, wall art and masks.
This company is also aiming for $1 billion revenue over the long term. I think it has a good chance of reaching it because of the network effects of owning a global marketplace.
After excluding a positive bonus relating to delivery times, Redbubble’s marketplace revenue grew by 98% in the first quarter of FY21. Gross profit grew 118% and it generated $17.2 million of EBIT. I wouldn’t expect triple digit growth rates to continue for the whole of the 2021 calendar year, but the regular launch of new product lines significantly increases Redbubble’s addressable market.
Its operating cashflow is rapidly rising and I think this could be a good feature of producing outsized shareholder returns from here, either to pay shareholders dividends or fund bolt-on acquisitions that make sense.
Summary thoughts
I think both of these businesses have very good futures, with COVID-19 accelerating the adoption of these digitally-focused companies. I’d be happy to buy into both ASX tech shares today because they both have exciting futures.
There are other ASX growth shares in the tech space I like the look of such as EML Payments Ltd (ASX: EML) and Altium Limited (ASX: ALU).
