‘Tech’ isn’t a dirty word

Whilst associating ‘tech’ to your company name may be starting to attract somewhat negative connotations in the US – in Australia, in the right conditions, it could mean that you’re set to boom.

Currently, a number of the most-anticipated tech IPO’s of the year in the US are trading well below their offer prices. For example; the ride-sharing app ‘Lyft’ IPO’d on 29/03 at $87.24, was then offered at $72, and is currently sitting at $48.06 – a whopping 44.9% down on its debut price. And it’s not alone.

Uber, Fiverr, and Slack are down by 18%, 19%, and 32% respectively when compared to their debut price, and these companies are continuing to burn cash whilst struggling to make a profit. And it’s not just these ‘tech’ companies that are struggling, in fact, ‘tech’ as a whole is becoming less desirable as companies are starting to steer away from clumping together on a sinking ship. Overall, company documents referencing ‘tech’ and ‘technology’ peaked around August in 2018, but since then, the number of documents with those terms declined by around 12%, indicating a change in the way businesses are wanting to market themselves towards investors and customers.

But is it the same in Australia?

Fund Manager at Spheria Asset Management, Matthew Booker, doesn’t seem to think so. Booker believes that undervalued share prices outside the WAAAX stocks offer appealing catches to private equity firms.

“You’re going to see private equity pay more attention to those cheaper companies,” he said. “You can see that takeover theme gripping the industry already through the activity around GBST.”

Booker said a wave of takeovers began with the aggressive bidding war for GBST in July, despite some experts claiming that the local sector was trading at a premium compared to global tech stocks.

WAAAX is comprised of megacompanies; Wisetech Global, Afterpay Touch, Appen, Altium, and Xero – and together added 241.6 points to the ASX/S&P200 index over the past year. WAAAX’s share prices also increased by 51% on average in the same period. And whilst Afterpay may continue to sign large marque brands and successfully penetrate the US market, a key risk that we’ll be watching closely is the potential for Australia and the US to experience a significant bad debt cycle: something which Afterpay’s model has yet to encounter.

A Business Insiders report released earlier in 2019 showed just how booming the tech market is in Australia – announcing that a whopping 20,000 new app developers entered the market between March 2017 and January 2019. This signifies a 20.35% growth, with app developer numbers rising from 117,000 to 136,000.

With share prices performing well throughout the year, people are beginning to look towards equity development and takeovers – and Booker believes that takeovers in Australia are primed to flood the technology sector in the years to come. It certainly is shaping up to be an interesting year for the sector ahead.