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2 exciting ASX tech shares that could be buys

Temple & Webster is one of the exciting ASX tech shares to watch.
The post 2 exciting ASX tech shares that could be buys appeared first on The Motley Fool Australia. –

There are some exciting ASX tech shares that investors may want to keep their eyes on.

Businesses in the technology space are often innovators and provide a new service that may be attracting a lot of customers or clients.

Digital services can typically come with lower operating costs, leading to higher profit margins for the businesses involved.

Here are two in the ASX tech share space that could be worth thinking about:

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is aiming to be Australia’s largest business, offline or online, for furniture and homewares in its home market.

The company is seeing growing customer loyalty, with FY21 revenue per active customer increasing 12% year on year due to repeat buying more often and spending more when they do.

The ASX tech share says that demographic and structural changes will drive strong market growth for years to come.

A key point is that millennials, who are more likely to shop online, are entering the company’s core spending demographic between 35 to 65.

Temple & Webster also believes there are a number of structural changes that will benefit its future. There are physical store closures, new consumer habits are being formed during lockdowns, faster internet and mobile speeds, net market entrants (like Amazon) accelerating online shopping take-up and new technology improving the experience and conversion (such as augmented reality).

The business has an asset light business model and it plans to invest heavily over the coming years in technology, the customer experience, better service, expanded private label range and eventually expand overseas.

It continues to grow rapidly. In FY21 it saw full year revenue growth of 8% to $326.3 million. In the first few weeks of July 2021, it saw revenue rise another 39%.

Adore Beauty Group Ltd (ASX: ABY)

Adore Beauty is another business in the e-commerce space. The company sells around 11,000 products from a portfolio of over 260 brands.

It hasn’t released its FY21 result yet (due 30 August 2021), but Adore Beauty is expecting to report revenue growth for the year of between 43% to 47%. That was after it reported that its third quarter revenue went up 47% to $39.4 million.

The ASX tech share points to both its opportunity and the benefit of scale. Adore Beauty recently said:

The beauty and personal care (BPC) market in Australia is worth $11.2 billion and is expected to grow at a 26% compound annual growth rate (CAGR) to 2024. Online sales comprise 11.4% of the BPC market, a lower rate of penetration than in developed markets like the US, UK and China. Given this significant opportunity, Adore Beauty’s strategy remains focused on growing its market share through disciplined investment to drive brand awareness, new customer acquisition and returning customer retention. Given the predominately fixed nature of the business’ cost base, management expects scale benefits to increase operating leverage and deliver earnings before interest, tax, depreciation and amortisation (EBITDA) margin expansion in the longer term as the company continues to grow revenue.

The ASX tech share continues to see a structural shift in consumer behaviour towards online retail, based on continued strong retention of customers acquired during the COVID-19 lockdowns.

It’s currently rated as a buy by the broker UBS with a price target of $5.60.

The post 2 exciting ASX tech shares that could be buys appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group Limited. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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