Will Altium Limited (ASX:ALU) shares drop in reaction to a disappointing FY21 half-year update?
Altium is one of the largest electronic PCB software businesses in the world.
What happened?
Altium gave an update about its sales and revenue for the half year to 31 December 2020. Its total revenue fell by 3% to US$89.6 million because of challenging COVID-19 conditions in the US and Europe, as well as challenging economic conditions in China, for licence compliance activities.
What went wrong?
The technology business said that the Americas underperformed with a decline of 10% in revenue for the half as the unprecedented levels of COVID-19 negatively impacted its performance.
NEXUS recorded a decline of 14% for the half-year due to the timing of deals with a significant pipeline in the second half.
The third area of disappointment was that China underperformed with a decline of 15% in revenue for the half as licence compliance activities have become more challenging at the low end of the market due to uncertain economic conditions after COVID-19 in China.
Was anything going well?
Altium said that its board and systems revenue was stronger in the second quarter of FY21 compared to the first quarter. The first quarter was down 11% year on year, but improved to be flat year on year in the second quarter. Altium also reminded investors about the significant restructuring that is being done to Altium’s sales organisation to enable the pivot to the cloud.
Electronic manufacturing has rebounded with Octopart benefiting from this recovery and it achieved 19% revenue growth in the half. This is a positive leading indictor for PCB design growth that should drive Altium Designer sales in the second half.
Finally, there has been strong growth in term-based licenses, up 166%, in the first half which resulted in around a US$1 million negative revenue impact.
Other comments
Altium is confident that its recovery will continue into the second half. It’s expecting second half growth from the Americas, China and NEXUS.
In the upcoming half-year result (scheduled for 15 February 2021), the company plans to share more details about how it plans to reach PCB market domination and how Altium is accelerating the industry transformation agenda. It will also update the path to US$500 million revenue and 100,000 subscribers after the sale of TASKING.
Summary thoughts
The disruption to Altium is going a bit longer than I initially thought it would, but in the grand scheme of things the problems in Europe and the US are hopefully just short term. The compliance issue in China could turn into a longer term problem, when you consider the other difficulties between China and the West.
Altium shares are not exactly cheap, but it has been falling in recent weeks so in two years from now this may seem like an opportunistic time to buy if Altium can regain profit and margin momentum again.
But for now, there are other ASX growth shares I like more such as Pushpay Holdings Ltd (ASX: PPH).
