For many investors, when they think of tech stocks, they immediately think of the US tech giants like Google, Microsoft, Amazon, Apple and Netflix.
Within Australia, Afterpay is considered the standard bearer for ASX tech stock success.
At Next Investors our focus is on discovering the NEXT Afterpay, and it takes a certain mindset to understand these minnows of the tech world.
For starters, you have to understand where a tech company is in its lifecycle, and the different risks and challenges associated with each stage.
Generally speaking, the earlier a company is in this lifecycle, the higher the potential for multiple returns but the higher the risk of failure.
When assessing the value of tech stocks it's important to consider the different metrics by which they are judged.
Many blue chip companies in other industries are judged on profitability or dividend yields.
However, tech companies are largely viewed through the lens of user growth, user retention and whether or not it archives ‘product-market fit’.
Increasingly, tech companies have shifted from a unit based sales model to a subscription model, otherwise known as SaaS (Software-as-a-Service).
With this model the goal is to generate Annual Recurring Revenue (ARR). ARR is appealing to investors because if the customer retention rate is high - it provides a steady stream of cash flow into the business - smoothing out returns and reducing reliance on lumpy deal-flow.
These are just some of the factors that go into our tech stock investments. To learn more about these topics, simply click on the articles below to dive into all our educational material on tech stocks.
Learn about Tech Stocks
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