I think the two ASX tech shares in this article are quality ideas that could do well over the long-term.
Technology is particularly appealing to me because certain companies are exposed to some very nice tailwinds and/or have very good margins.
These are two that look attractive to me:
VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)
The e-sports and video gaming sector has been growing for some time and it seems like the tailwinds can continue to blow in favour of the industry for a while to come. There are bigger and bigger audiences and more money is being spent for the gaming world.
This isn’t the type of exchange-traded fund (ETF) you think about for high levels of diversification. It only has 26 holdings and they’re mostly about the video gaming world.
But these businesses typically have loyal customer bases, good margins and upcoming products that can continue to generate earnings into the coming years.
Readers may have heard of some of the ETF’s holdings like Nvidia, Advanced Micro Devices, Tencent, Nintendo and Activision Blizzard.
One of the other things I like about this ETF isn’t that there isn’t a huge focus on US businesses like many other international ETF options. VanEck Vectors Video Gaming and eSports ETF ‘only’ has a weighting of 43.2% to US shares.
Redbubble Ltd (ASX: RBL)
Redbubble is a leading e-commerce ASX tech share. It has two websites – Redbubble and TeePublic.
The company allows customers to find unique designs and prints on quality products. The artists – who make the designs – get a cut of the product sales.
E-commerce is a good industry to be in. Once the online infrastructure has been designed, the fixed costs become a smaller and smaller percentage of sales, leading to higher margins.
Redbubble had been achieving steadily growing operating cashflow, EBITDA and EBIT margins (EBITDA explained) before changing strategy. It’s now going to invest heavily to pursue the large e-commerce market that it thinks will continue to grow in the coming years.
In the short-term, this will see low EBITDA margins. But in the long-term it could lead to stronger economies of scale, better brand awareness and customer loyalty.
After a 42% drop of the Redbubble share price over the last six months, I believe the ASX tech share could be a good long-term opportunity at these levels.
