I’ve got my eyes on some great ASX tech shares in April 2021.
In my opinion, technology businesses are really exciting ideas because of how profitable they can be.
ASX tech shares that have large addressable markets, high (and growing profit margins) and are delivering good revenue growth are very attractive prospects.
Xero Limited (ASX: XRO)
Cloud accounting business Xero certainly has a large addressable market. It can target every small and medium business in every ‘western’ developed country in the world. It’s operating in New Zealand, Australia, the UK, the USA, Singapore, South Africa, Canada and many more places.
It has a very impressive gross profit margin of 85.7%, which was an increase from 85.2% in the prior corresponding period. Xero is heavily investing for growth at the moment, so investors aren’t quite seeing the full potential for the EBITDA (EBITDA explained) margin, net profit margin or free cash flow margin yet.
In Xero’s FY21 half-year result it saw subscriber growth of 19% to 2.45 million, with operating revenue increasing 21% to $410 million.
The Xero share price grew strongly in March 2021, but I think it’s still a good long term opportunity, particularly after its recent acquisitions which improves the capabilities of the business and the offering it can give to subscribers.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is another ASX tech share that I really like the look of.
The business services large and medium US churches with donation tools and church management systems.
One of the main reasons why I think Pushpay is an interesting idea is that it’s aiming to reach US$1 billion of revenue. It’s fairly early on with this goal considering the first six months of its FY21 result saw the business make US$85.6 million of revenue.
But there are plenty of reasons why I think it can grow to reach the target. Payments are steadily changing to digital transactions rather than giving cash. Whilst COVID-19 accelerated the adoption of digital donations, I don’t believe it’s going to revert back to cash.
Pushpay is targeting other areas to expand its technology offering to – smaller churches, different religions and different countries.
The company’s margins are growing at a pleasing rate. In the HY21 report, Pushpay showed that the gross profit margin increased from 65% to 68%. As the business gets bigger, it could earn even stronger margins.
Unlike some other highly regarded (and priced) ASX tech shares, Pushpay is generating really good revenue and profit growth. HY21 operating revenue rose 53% to US$85.6 million, whilst net profit increased by 107% to US$13.4 million and operating cashflow rose 203% to US$27 million.
Pushpay could turn into a cashflow machine in the coming years if it keeps getting bigger.
Using the profit estimates on CommSec, Pushpay is valued at 34 times the 2022 financial year’s forecast profit.
