There are some great ASX tech shares that I’d buy in May 2022. These lower prices are looking attractive to me.
Technology businesses can grow revenue quickly, they can achieve attractive profit margins and therefore they can deliver good shareholder returns if things go well.
It’s understandable that share prices have declined in light of the impending interest rate rises. But, I think that makes these two businesses even more compelling than they were before:
Temple & Webster Group Ltd (ASX: TPW)
This ASX tech share sells over 180,000 products in the categories of furniture and homewares.
It’s delivering excellent growth, ticking that box. COVID-19 has led to increased growth for the business. In the first half of FY22, its revenue of $235.4 million was up 46% year on year and up 218% compared to HY20.
This business is already the leading pure play online retailer for furniture and homewares in Australia. It wants to become the leader of the entire sector in Australia, even compared to its offline competitors.
The ASX tech share says that supply chain diversity is mitigating short-term disruptions. It’s sourcing directly from over 100 factories through its private label and thousands indirectly from its drop ship model where suppliers send products straight to the customer.
It’s looking to grow its growth runway with two other areas – trade and commercial and home improvement, which represent 7% and 4% of group revenue. In HY22, home improvement revenue rose 95%.
Home improvement is a $16 billion addressable market in Australia. It has product classes like tools and equipment, garden and landscaping, paint and supplies, window furnishings, flooring, plumbing fixtures and other products. Less than 5% of this category has moved online.
I think Temple & Webster can become much larger as more customers use it for more of their household needs. Bigger scale increases its operating leverage, allowing it to invest further in growth and take market share.
Xero Limited (ASX: XRO)
I believe that Xero is one of the best ASX tech shares around, with a very high gross profit margin.
It is rapidly adding subscribers in ANZ, the UK and other countries around the world. Canada is another large market that Xero is targeting.
The company has developed, and is still investing in, a small business platform. It enables businesses to operate efficiently, be more successful with cashflow, manage and pay their employees and so on. This strong offering means that subscribers are very loyal to Xero and are sticking around the long-term, helping the lifetime value of subscribers.
Xero is already a really big business and it’s still re-investing significantly for more growth.
The company has been making bolt-on acquisitions that add to its offering.
When Xero decides it’s going to start making a profit, I think it can become very profitable.
