The two ASX tech shares here are two of the ones I’d love to buy and own for a decade.
I think that businesses with a high level of technology involved with its product or service has the ability to deliver attractive returns over the long-term as it benefits from good revenue growth and rising profit margins.
In my opinion, these two ASX tech shares could be very attractive over the next decade:
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is one of the largest furniture and homewares businesses in Australia. It sells hundreds of thousands of products, which mostly come from suppliers but it also has a growing private label brand.
I think it certainly ticks the fast growth box. Temple & Webster has seriously capitalised on the tailwinds created by COVID-19 – increased discretionary spending, people investing in their homes and a rise in e-commerce.
In FY21, the ASX tech share’s revenue grew by 85% year on year to $326.3 million. The growth continues at a very fast rate. FY21 fourth quarter revenue increased 26% (after FY20Q4 revenue rose 130%). In FY22, the first couple of months saw revenue growth of another 50%.
Despite the company’s heavy investing in various parts of the business, like augmented reality, data, analytics, logistics, its private label brand, marketing and efficiencies, its profitability showed through in FY21. I think this demonstrates how profitability can rise once Temple & Webster doesn’t need to invest such a high percentage of its revenue. FY21 EBITDA (EBITDA explained) grew 141% year on year to $20.5 million and normalised net profit jumped 165% to $14 million.
Over the rest of this decade, I think it can become a much larger, diversified and profitable business.
Adore Beauty Group Ltd (ASX: ABY)
Adore Beauty is an e-commerce leader in the beauty space. It sells thousands of products from loads of different brands.
If Adore Beauty can offer features like the widest range, the cheapest prices, the best customer service or perhaps the best add-ons then it can capture a sizeable part of the large and growing beauty market in Australia.
The ASX tech share is also growing at a fast pace each year. In FY21 its revenue grew by 48% to $179.3 million, whilst the first quarter of FY22 saw revenue increased by 25% to $63.8 million.
A key part of the grow is from customers returning. FY22 Q1 saw active customer growth of 24% to 874,000, whilst returning customer growth was 63% to 418,000. FY21 showed that annual revenue per active customer increased 7% to $219, driven by customer retention and increasing average order value.
Adore Beauty is also showing early signs of good profitability, as it invests heavily in growth. FY21’s gross profit margin improved 1.2 percentage points to 33.1%. EBITDA jumped 53% to $7.6 million.
This company is targeting an addressable market that’s supposedly worth $11 billion. I think Adore Beauty can capture a good portion of this over the coming decade and achieve scale benefits.
