The US election is about to happen and that could present some opportunities to buy some great ASX tech shares at a cheaper price.
I really like technology businesses as a sector because they have some useful advantages compared to others like financials, resources or bricks and mortar retail.
Tech shares can expand very cheaply – it costs Google or Xero Limited (ASX: XRO) very little to add a new user onto their service because that user is utilising already-existing, low-cost infrastructure. That’s why the Xero gross profit margin was up to 85.2% in the last result. But the Xero share price has performed very strongly in 2020, so there are other ASX tech shares I’d buy first like these two:
Redbubble Ltd (ASX: RBL)
I like to find businesses that are growing at a fast pace, have a long growth runway and are also growing their profit margins. I think that combination can lead to good shareholder returns.
Redbubble is an online marketplace that sells artist-produced products like wall art, masks and clothing. It also operates another website called TeePublic. It has a global reach, only a relatively small amount of its sales come from Australia.
FY20 was really good for Redbubble. Marketplace revenue rose by 36% to $349 million, gross profit rose by 42% to $134 million, operating EBITDA (click here to learn what EBITDA means) jumped by 141% to $15.3 million and EBITDA increased 358% to $5.1 million.
Redbubble has backed that growth up with a great first quarter in FY21. Marketplace revenue soared 116% to $147.5 million. Gross profit grew even faster, rising by 149% to $64.5 million. That’s a clear sign that growth is still strong and margins are still rising.
In three to five years I think the company could be much larger with even higher margins. The Redbubble share price has actually dropped 27% over the past couple of weeks.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is another e-commerce based business. It sells a variety of furniture and home furnishings that have been in high demand ever since COVID-19 started affecting Australians.
I always thought that the world would be steadily moving to online sales, but this period has brought forward the adoption of e-commerce. In FY20, revenue was up 74% over the year to $176.3 million. The second half revenue was up 96% and the fourth quarter revenue was up 130%. EBITDA increased by 467% to $8.5 million.
Again, you can see growth is continuing strongly with the first quarter of FY21 starting with a bang. In the financial year to date (YTD) from 1 July 2020 to 19 October 2020, it saw revenue grow by 138% compared to the prior corresponding period.
The first quarter of FY21 saw the company generate $8.6 million of EBITDA, which was more than the whole of FY20. October’s revenue growth was more than 100%.
The Temple & Webster share price is down 28% since the trading update on 20 October 2020. I reckon this lower price is a good time to enter for a long term investment.
I think Temple & Webster could be one of the ASX growth shares to grow revenue the most in FY21.
