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After such a tricky start to 2022 for ASX tech shares, I think there are plenty of potential opportunities. May 2022 could be a good month for hunting in the tech sector.
I like a number of businesses in the sector. ASX tech shares often have the capability to achieve attractive profit margins because of the intangible nature of what they provide. It’s easier and cheaper to digitally send software to a new client than to make a new car or a table.
The concerns about inflation and interest rates have given the market jitters. But I think these lower prices now mean investors can buy some really good investments at much more attractive prices. So, here are two of my ASX tech share ideas as potential bargains.
VanEck Video Gaming and Esports ETF (ASX: ESPO)
This is an exchange-traded fund (ETF) that gives investors access to a group of global video gaming businesses.
Gaming readers may recognise some of the names in the portfolio including: Tencent, Nvidia, Activision Blizzard, Netease, Nintendo, Advanced Micro Devices, Electronic Arts, Nexon, Bandai Namco, and Ubisoft.
This ETF is invested in businesses that are seeing pleasing growth. VanEck said that video gaming revenue had risen by an average of 12% per annum since 2015. E-sports revenue grew by an average of 28% per annum since 2015.
VanEck points out that e-sports has created new potential revenue streams from game publisher fees, media rights, merchandise, ticket sales, and advertising. The competitive video gaming audience is expected to reach 646 million people worldwide in 2023, driven partly by an increasing number of people on the internet.
I think the ESPO ETF is attractive for its revenue growth and the fact that it has fallen by 20% since the start of the year.
ELMO provides human resources and payroll software for small and medium businesses in Australia and the UK.
The business is rapidly scaling as shown by its latest quarterly update for the three months to 31 March 2022. This showed revenue rising by 37% to $67.4 million. Annualised recurring revenue (ARR) rose 33% to $101.2 million.
While the ELMO Software share price has dropped by more than 30% in 2022 to date, I think it has demonstrated a couple of positives recently. The FY22 third quarter showed that the business had swung to profit at the earnings before interest, tax, depreciation and amortisation (EBITDA) level. EBITDA rose $3.2 million year on year to $2 million.
The company also confirmed that it’s expecting to cross the cash flow breakeven point in the second half of FY23. It also said that its ARR is expected to rise to between $107 million to $113 million by the end of FY22, representing growth of between 28% to 35% year on year.
The company continues to grow its client base and it’s adding more modules for clients to use. This makes customers more valuable to ELMO Software and makes the software more useful to clients.