I’ve got my eyes on a few ASX tech shares that could be good investment ideas for the longer term. I’ve got my eyes on a few if I were trying to invest $1,000.
I think that technology businesses could be a solid place to look because of the attractive operating margins that they can generate over time:
Redbubble Ltd (ASX: RBL)
Redbubble is a sizeable e-commerce business. It has a pretty different model – Redbubble provides ‘blank’, quality products that can then be adorned with designs by artists. We’re talking about products like clothes, phone cases, masks, bags, wall art and so on.
It has been growing its marketplace revenue (that’s gross revenue minus artist payments) at a strong rate, particularly since the onset of COVID-19.
With greater scale comes a number of benefits that can lead to higher profit margins. However, due to the huge opportunity, management want to invest heavily to capture a higher market share.
Long-term investors may benefit from the significantly lower Redbubble share price. The ASX tech share has dropped 41% over the last six months, but continues to grow revenue.
VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)
This exchange-traded fund (ETF) is a good way to get exposure to a good growth trend. Video gaming and e-sports companies have been growing revenue at a double digit rate for a number of years.
There are various businesses involved in the gaming sector – not just game makers, but other parts of the ecosystem too.
Looking at the current 25 holdings, the biggest 10 and the weightings are: Nvidia (9.76%), Sea (7.1%), Tencent (7.04%), Advanced Micro Devices (6.77%), Nintendo (6.44%), Activision Blizzard (5.48%), Netease (5.22%), Bilibili (4.86%), Take-Two Interactive Software (4.74%) and Electronic Arts (4.63%).
The increased interest in e-sports is now so much is that the global audiences are now the size of soccer and Olympic events.
I think it’s a good way to get tech diversification, but not from the typical FAANG names.
Class Ltd (ASX: CL1)
Class has a number of attributes that tech investors might want to look for in an ASX tech share.
It has a high amount of recurring revenue from its SMSF account clients. This earns a good EBITDA margin (EBITDA explained).
Whilst the SMSF growth has slowed down, there is plenty of growth potential with cross-selling to customers of the acquisitions it recently bought. Those acquisitions can produce organic growth themselves. It also has other Class products that can grow, such as Class Portfolio and Class Trust.
Class could acquire other businesses and it also has plans to expand offshore.
Its valuation also looks pretty good. According to CommSec, the Class share price is priced at 28 times the estimated earnings for the 2021 financial year.