2022 has been a tumultuous year. With ASX tech share valuations down significantly this year, it could prove to be a good time to go hunting.
If businesses can continue in size to grow through the next period, then a lower share price is getting investments at better value. Sometimes a fall in the growth/revenue would justify a lower share price and it may not be better value.
With that in mind, I like the long-term prospects of these two:
Xero Limited (ASX: XRO)
Xero is my favourite ASX 200 (ASX: XJO) tech share. It provides software for small and medium businesses in areas like payroll, accounting, automating receivables and payables, and much more.
As a business that’s expected to grow a lot in the coming years, the higher interest rates have really hurt the Xero share price. In the past 12 months it has dropped a whopping 52%.
I think the FY23 half-year result was solid. Operating revenue jumped 30% to $658.5 million, while free cash flow surged 145% to $15.6 million. The average revenue per user (ARPU) increased 13% to $35.30. It keeps investing for long-term growth.
The ASX tech share continues to grow its subscriber numbers. Total subscribers increased by 16% to around 3.5 million.
As the company continues to grow, I can see that the profit margins can increase even as it invests for further growth in countries like the UK and Canada.
VanEck Video Gaming and Esports ETF (ASX: ESPO)
The valuation reset has hit entire sectors. Video gaming and e-sports businesses were one of the unlucky ones to be hit particularly hard. The VanEck Video Gaming and Esports ETF has dropped around 36% over the past year.
I certainly don’t think that video gaming demand or e-sports viewership is going to drop 36% during this period.
This exchange-traded fund (ETF) owns a portfolio of 25 businesses that “are positioned to benefit from the increasing popularity of video games and e-sports”.
These businesses derive a significant portion of their revenue from the video gaming and e-sports industry, driving transformation in the sector.
Investors may recognise some of the holdings in the ESPO ETF’s portfolio including Nvidia, Activision Blizzard, Nintendo, Advanced Micro Devices, Tencent, Electronic Arts, Take-Two Interactive Software, Aristocrat Leisure Limited (ASX: ALL) and Bandai Namco.
I think the ongoing digitalisation of emerging economies and growth of the popularity of e-sports will help the underlying earnings of these businesses. This could help the ASX tech share in the coming years.
