3 quality SaaS ASX shares to buy

Here are 3 quality software as a service (SaaS) ASX shares that could be worth a spot in your portfolio such as Xero Limited (ASX:XRO).
The post 3 quality SaaS ASX shares to buy appeared first on The Motley Fool Australia. –

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There are a number of quality software as a service (SaaS) ASX shares that may be worth looking into.

SaaS businesses are companies that provide an important ongoing service to clients. Here are some of the larger ones on the ASX:

Altium Limited (ASX: ALU)

Altium is one of the world’s leading electronic PCB software companies. It assists individual engineers, or teams of engineers, to design the vehicles, devices and other products of the future.

It has an impressive list of large, globally-recognised clients including Tesla, Toyota, Ford, Bosch, Google, Proctor & Gamble, Google, Space X, NASA, Boeing, Lockheed Martin, CSIRO, Cochlear Limited (ASX: COH), ResMed Inc (ASX: RMD), Boston Scientific, Siemens, ABB, Honeywell, Microsoft, Lenovo, HP, Amazon, Disney, Apple, Broadcom, Qualcomm and Texas Instruments.

The SaaS ASX share has announced its plan to pivot the business towards the cloud with its online platform offering called Altium 365. The idea is that it will help engineer teams to collaborate better and provide better service for customers. The change could also lead to direct and indirect monetisation opportunities for Altium whether it’s based on transactions (like the Airbnb model) or premium services (such as the Amazon Prime model). Clients can continue to utilise Altium’s software how they wish to.

In the FY20 result, Altium reported that Altium Designer subscribers grew by 17%, revenue grew by 10% to US$189.1 million and earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 13% to US$75.6 million. The EBITDA margin increased to 40%, up from 38.9%.

Altium has provided guidance that revenue is expected to increase by 6% to 12% to a range of US$200 million to US$212 million in FY21.

Volpara Health Technologies Ltd (ASX: VHT)

Volpara is a medical technology business. Its main service is providing software to help detect breast cancer early on by increasing the quality of screening using AI.

The FY21 interim result from Volpara showed that annual recurring revenue (ARR) went up by around 27% to NZ$19.9 million as subscription revenue grew by 71% to NZ$8.8 million.

Volpara can boast of a fairly high market share. Approximately 27% of women in the US had a Volpara product used on their data and images. This was an increase compared to 25.8% at the end of the prior corresponding period.

The SaaS ASX share also reported that its gross profit margin went up, when it was already high. It grew three percentage points from 89% to 92%. The average revenue per user (ARPU) grew by 4.5% to US$1.16.

Management want to keep the client retention rate high, increase ARPU, win new customers, sell more services to existing customers and look at potential acquisitions.

Xero Limited (ASX: XRO)

Xero is one of the largest cloud accounting businesses in the world. Its target market is small and medium business customers. One of the main benefits of using Xero software is that it offers a number of automation and time-saving tools. Business owners, employees, bookkeepers, accountants and other people can all access the same system. Xero likes to present its software in a ‘beautiful’, easy-to-understand way to users.

The SaaS ASX share generates consistent monthly cashflow as subscribers pay for the product. The cloud accounting model means that users can access the numbers anywhere at any time.

Xero reported continuing growth in the FY21 half-year result. It revealed that operating revenue grew by 21%, subscriber numbers increased by 19% and there was a 15% rise in annualised monthly recurring revenue. All of these growth numbers helped EBITDA go up 86%. Its gross profit margin remains very high, reaching 85.7% in the report.

A key part of the growth engine was the UK, where total subscribers went up by 19% to 638,000.

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Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium and VOLPARA FPO NZ. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and Xero. The Motley Fool Australia has recommended Cochlear Ltd., ResMed Inc., and VOLPARA FPO NZ. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 3 quality SaaS ASX shares to buy appeared first on The Motley Fool Australia.

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