ASX Tech Stocks - WAAAX vs FAANG Stocks

ASX Tech Stocks 

ASX Tech Stocks - WAAAX vs FAANG. Ben Yeo, Head of Equity Capital Markets at PhillipCapital Australia, appeared on Your Money Interview (15th January 2019)  

FAANG stocks are going through a rough patch:

  • Facebook Inc. (FB.NASDAQ) – Down approximately 33% from it’s high of $217.50 July 25 2018;
  • Amazon.com Inc. (AMZN.NASDAQ) – Down approximately 20% from it’s high of high of $2,039.51 September 4 2018;
  • Apple Inc. (AAPL.NASDAQ) – Down approximately 35% from it’s high of $232.07 October 3 2018;
  • Netflix Inc. (NFLX.NASDAQ) – Down approximately 20% from it’s high of $418.65 July 11 2018; and
  • Alphabet Inc (GOOGL.NASDAQ) – Down approximately 18% from it’s high of $1,285.50 July 26 2018.

Buying Netflix causes investors to abandon conservative valuation principles when the stock trades at approximately:

  • 80 times its earnings
  • 50 times its EBITDA; and
  • 7 times its revenue

 Ben Yeo Your Money interview 150119 1 

Ben Yeo discussing large cap tech stocks and the rough patch on FAANG stocks on Your Money Australia.

There is limited correlation between FAANG stocks and ASX Tech Stocks, however investors will throw traditional valuation methodology out the window when making an investment decision.

  • High Growth, High Multiple and therefore High Risk area of the market;
  • Those generating good cashflows and with strong balance sheets may thrive; and
  • Investors must look at the fundamentals of the tech stock, a lot burn substantial amounts of cash however if they can demonstrate that their underlying revenue is increasing you can quickly correlate the point at which they will breakeven.

WAAAX stocks in the Australia Market include:

  • WiseTech Global Ltd (WTC.AX) – Down approximately 5% from it’s high of $25.00 August 23 2018;
  • Appen Ltd (APX.AX) – Down approximately 7% from it’s high of $15.74 September 3 2018;
  • Afterpay Touch Group Ltd (APT.AX) – Down approximately 7% from it’s high of $21.13 August 27 2018;
  • Altium Ltd (ALU.AX) – Down approximately 4% from it’s high of $29.74 August 22 2018; and
  • Xero Limited (XRO.AX) – Down approximately 2% from it’s high of $52.34 August 30 2018;

Ben Yeo Your Money interview 1501193 

Favored ASX Tech Stock

  • Afterpay Touch Group Ltd (APT.AX) – Investors will be keen to see the results of APT’s expansion into the US and the traction garnered over the Thanksgiving and Christmas Period before a review of the valuation of APT.
  • WiseTech Global Ltd (WTC.AX) – Capital light, low level of debt, good business model and high customer retention rate ticks a lot of the boxes of a successful business.

Software versus Hardware

  • Generally hardware meets the needs of the software being developed, especially in the handset market;
  • However, with the introduction and implementation of 5G new 5G capable hardware will need to be purchased which will benefit companies such as Apple, Samsung, etc.

📺 Watch the full interview on Your Money Australia: http://bit.ly/AussieOnFAANG

For more information, contact Ben Yeo at byeo@phillipcapital.com.au

 

This publication has been prepared solely for the information of the particular person to whom it was supplied by Phillip Capital Limited AFSL 246827 and/or Phillip Capital Trading Pty Ltd AFSL 246796 (together “PhillipCapital”). 

This publication contains general securities advice.  In preparing the advice, PhillipCapital has not taken into account the investment objectives, financial situation and particular needs of any particular person.  Before making an investment decision on the basis of this advice, you need to consider, with or without the assistance of a securities adviser, whether the advice in this publication is appropriate in light of your particular investment needs, objectives and financial situation.  PhillipCapital and its associates within the meaning of the Corporations Act may hold securities in the companies referred to in this publication.  PhillipCapital believes that the advice and information herein is accurate and reliable, but no warranties of accuracy, reliability or completeness are given (except insofar as liability under any statute cannot be excluded). No responsibility for any errors or omissions or any negligence is accepted by PhillipCapital or any of its directors, employees or agents.  This publication must not be distributed to retail investors outside of Australia.

It is recommended that you seek independent advice and read the relevant Product Disclosure Statement before making a decision in relation to any investment. Any advice contained in this communication is general and has not taken into account the investment objectives, financial situation and particular needs of any particular person.

 

About Benjamin Yeo

03 9618 8257 Email Profile

Responsible for developing equity market solutions for PhillipCapital’s Corporate Clients, Benjamin has over 10 years experience in the Financial Services Industry and strong personal relationships with both investor and issuer clients.

Specialising in providing corporate and strategic advice to both private and public companies especially in relation to takeovers, mergers, acquisitions and divestments, venture capital, capital management, including debt and equity raisings, IPO’s and MBO’s.

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