If I were looking to buy some ASX tech shares, then I know the ones I’d want to pick – businesses with big revenue growth potential and rising profit margins.
Technology businesses have quite a few advantages compared to other industries. I think those advantages can help them deliver market-beating returns over time.
Here are two I’ve got my eyes on:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is one of the leading digital donation businesses in the US. Its clients are predominately medium and large US churches.
It’s currently processing billions of dollars for those churches and it wants to grow its market share to as much as 50%, which could translate into annual revenue of US$1 billion for the company.
That target is a long way off considering Pushpay’s half year result saw its operating revenue increase by 53% to US$85.6 million.
One of the things that attracts me the most to this ASX tech share is its operating leverage, which keeps getting stronger.
Whilst revenue grew by 53% (which is fast growth), EBITDAF (click here to learn what EBITDA means – the F stands for foreign currency) grew by 177% to US$26.7 million. The EBITDAF margin grew from 17% to 31%. That increase in the margin helps profit grow even faster. Net profit after tax (NPAT) went up by 107% to US$13.4 million and the operating cashflow grew by 203% to US$27 million.
The business regularly improves its profit guidance too, which is a good sign and could mean the current Pushpay share price is undervalued.
According to CommSec, the Pushpay share price is valued at 30 times the estimated earnings for the 2022 financial year.
Redbubble Ltd (ASX: RBL)
Redbubble is another ASX tech share that I really like.
The business is one that generates limited earnings from Australia, it’s actually a global play on the e-commerce space. It sells a wide array of artist-designed products like wall art, clothes and phone cases.
Redbubble is seeing high levels of growth right now, which is really powering its revenue and cashflow higher. In the half-year result of FY21 it saw marketplace revenue growth of 96% to $353 million, whilst operating cashflow rose 95% to $80 million despite investing heavily for growth.
The company is also aiming for $1 billion of revenue over the longer term as it cements its place in the global e-commerce world whilst adding more product lines. The addition of the mask category has generated millions of dollars of revenue for Redbubble.
Growth is expected to continue to grow in the second half of FY21 for the ASX tech share, with January revenue growing 82% in constant currency terms.
