What’s Coming For WAAAX Stocks in 2020?

Just like there are FAANG stocks in the United States, Australia has WAAAX stocks, including WiseTech Global, Altium Limited, Appen Limited, Afterpay Limited and Xero Limited.

Let’s see how 2019 was for these stocks and overall technology sector, along with major developments in the field of technology and global factors that might impact the Australian technology sector.

WiseTech Global (ASX: WTC)

The stock of WiseTech Global (ASX: WTC) performed pretty well in 2019 until September 2019, during the period the stock reached its peak price for the entire year. On 9 September 2019, the WTC stock closed at $38.39. The stock reported a significant fall on 21 October 2019 and closed at $26.30, after J Cap alleged WiseTech of inflating profit as much as 178% and acquisitions made by the company.

The stock of WTC generated a YTD return of 45.16%. At the closure of market on 31 December 2019, the WTC stock settled at $22.460, down 4.181% from its previous close.

FY2019 WTC Performance

The company in FY2019 reported strong growth.

• Total revenue up by 57% to $348.3 million
• Operating profit grew by 37% to $80.2 million
• Net profit attributable to equity holders increased by 33% to $54.1 million
• Dividend in FY2019 grew by 18% to 1.95 cents per share

During FY2019, WTC’s revenue was driven by solid organic growth across its global business, addition of more than 830 internally created product improvements along with attributes to its CargoWise One technology platform. The company also acquired strategic assets in new geographical locations and adjacent technologies to speed up its future growth.

In FY2020, WTC expects to register revenue of $440 million - $460 million and EBITDA in the range of $145 million to $153 million.

Recent Development – WTC Acquires Ready Korea

WTC, on 10 December 2019, announced the acquisition of Ready Korea, which is a top customs, bonded warehouse and trade compliance solutions provider in South Korea, bringing regional customs and trade management expertise into the group.

• The deal would help the company in expanding its innovation and development capabilities in this region;
• Moreover, the deal would enable WTC to continue to build-out its global customs footprint.

Appen Limited (ASX: APX)

Appen Limited (ASX: APX) has delivered quite a decent YTD return of 83.13%. In 1H ended 30 June 2019, the company delivered a 60% growth in revenue to $245.1 million, while underlying EBITDA went up by 81% to $46.3 million and underlying NPAT grew by 67% to $29.6 million. EBITDA margins also improved from 16.8% to 18.9%, while relevance revenue increased by 48% to $193.7 million.

On 18 November 2019, the company released full-year guidance for the period ending 31 December 2019, with underlying EBITDA expected to come in the range of $96 million to $99 million. The company’s improved earnings forecast (earlier upper end of $85 million - $90 million) was driven by increases in monthly relevance revenues & margins.

The stock of APX at the end of the trading session on 31 December 2019 closed at $23.68, up 1.326% from its previous close.

Altium Limited (ASX: ALU)

The stock of Altium Limited (ASX: ALU) gave a decent YTD return of 67.24%. The stock which once traded at $21.61 on 2 January 2019 reached $34.720 on 31 December 2019. The closing price of $34.720 represented a decline of 3.929% from its previous close.

ALU, in FY2019 (ended 30 June 2019), reported an increase of 23.1% year on year to US$172.752 million in revenues, 43.7% to US$56.879 million in EBIT, 45.1% to US$57.612 million in profit before tax and 41.1% to US$52.893 million in net profit.

The company is focused on becoming a PCB design software market leader, with the target of achieving US$200 million in revenue for 2020 and market dominance by 2025.

Specific growth drivers include:

• The proliferation of electronics via the rise of smart connected devices would support growth for the company’s business in the near future.
• An increase in market share by winning business from companies that use competitors’ products and by taking the most of seats from firms that are new players to the electronic design market.
• Look for partnerships as well as M&A opportunities to assist in the long-term vision to develop a product design & realisation platform.

The company aims to achieve 100k subscribers and US$500 million in revenue by 2025.

Afterpay Limited (ASX: APT)

During 2019, Afterpay Limited (ASX:APT) witnessed various ups and downs. Its stock delivered an excellent YTD return of 150.92%. On 31 December 2019, the stock closed at $29.280, down 2.757% from its previous close.

Afterpay is a payment technology company that was in discussion during the year after its subsidiary Afterpay Pty Ltd received a notice from AUSTRAC, for the appointment of an external auditor to audit its AML/CTF compliance. The audit was completed by Mr Neil Jeans in November 2019, unveiling that Afterpay’s program is in line with the AML/CFT Act and Afterpay is a low-risk business with respect to susceptibility of being utilised for money laundering or terrorist financing activities. The audit report also provided certain recommendations related to APT’s ongoing AML/CFT compliance.

For 4 months to 31 October 2019, the company reported a 110% growth in underlying sales to $2.7 billion as compared to the previous corresponding period. Growth in the number of active customer base was 137% to 6.1 million and active merchant base was 96% to 39.450k.

Afterpay for the month of November 2019, Black Friday and Cyber Monday made a record sale of $1 billion.

Regulatory Update – California, US

On 2 January 2019, the company confirmed that an Afterpay subsidiary applied for a California finance lender’s licence through the California Department of Business Oversight (DBO) in 2019, which was issued on 12 November 2019 and is valid.

Xero Limited (ASX: XRO)

The stock of Xero Limited (ASX: XRO) has delivered an excellent YTD return of 94.21%, and on 27 December 2019 closed near its 52 weeks high price at $80. The closing price of $80 represented a decline of 2.368% from its previous close.

In the half-year period ended 30 September 2019, the company reported a 32% increase in operating revenue to $338.658 million, 30% growth in subscribers to 2,057,000, and 24% growth in net subscriber additions to 239,000 as compared to the previous corresponding period. Annualised monthly recurring revenue increased by 30% to $764.096 million. EBITDA excluding the impairment stood at $65.921 million, representing a growth of 91% from the previous corresponding period.

During the upcoming period, the company would continue to focus on growing its global small business platform and maintaining a preference for reinvesting cash generated, depending on the investment criteria and market conditions, targeted towards driving long-term shareholder value. The free cash flow in FY2020 ending 31/03/2020 is anticipated to be a similar proportion of total operating revenue reported during FY2019 ended 31 March 2019.

Developments in Australian Technology Sector

The year 2019 was an outstanding year for S&P/ASX 200 Information Technology, as the sector delivered a YTD return of 31.81% and surpassed benchmark index S&P/ASX 200, which delivered a YTD return of 18.38%, as of 31 December 2019.

Two technologies that would be driving the future of most of the jobs done in multiple sectors are automation and Artificial Intelligence. Keeping this in view, the Australian government also took various steps and framed the AI ethics principles for a better tomorrow.

In the BNPL sector, RBA in 2020 is going to examine the impact of no-surcharge rules imposed by the buy now pay later services in Australia. Merchants in Australia face various costs when they accept payment from end-users. In a few scenarios, merchants might wish to charge a different price, based on the mode of their payment.

As per the Reserve Bank of Australia, a concern for banking institutions is whether policy action pertaining to no-surcharge regulations should be considered. This would make the services provided by BNPL servics providers less attractive in case the merchants are imposing a surcharge for its application.

Global Factors/Events That Might Impact Technology Sector in Australia:

US China Trade War:

The two biggest economies of the world, US and China have been entangled in a trade dispute for more than a year now. Over the period, the war moved beyond from imposing new taxes to affecting the technology industries of each other, and the impact was witnessed in various parts of the world.

The phase one trade deal between the US and China is expected to be signed soon. Moreover, Trump administration’s diplomatic campaign against Huawei’s 5G telecommunications equipment has started gaining thrust, as the US has influenced countries like Japan, Australia and New Zealand to block Huawei from their 5G telecommunications networks.

In 2020, some of the economists believe that China would be investing more in technology and open its market in order to enhance competitiveness.

US Presidential Elections:

US presidential elections are scheduled in 2020, and 28 people are contesting for the position. Big technology would be in radar as candidates and members of Congress would be facing question-related to online privacy, antitrust, access to broadband, China tariffs, Huawei and many more.

WAAAX stocks have business operations either in the US or in other international markets, consequently global uncertainties can impact their business. Afterpay is also working towards facilitating its potential future expansion in other service offerings in the US. WiseTech has businesses in America, Australia, New Zealand, Asia, Europe and Africa, while Altium has offices in the United States. Moreover, Appen’s headquarters is in Seattle, and it has coverage in Australia, China, the US, the UK and Philippines.

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