The definition of a 'tech stock' is wildly different depending on who you're talking to. It could include companies that develop software, own or lease IT infrastructure, provide online services, specialise in online advertising, or manufacture electronic components or devices.
In Australia there are a myriad of companies that fit the mould but there are three (or maybe four) that can be considered local giants. These are REA Group Limited (ASX: REA), SEEK Limited (ASX: SEK), and Carsales.com Limited (ASX: CRZ) (and increasingly Domino's Pizza Enterprises Limited (ASX: DMP)).
Of course, these local 'giants' are nothing compared to their international rivals. Global tech stocks like Apple Inc. (NASDAQ: APPL), Google Inc (NASDAQ: GOOG) and Amazon.com Inc (NASDAQ: AMZN) have market caps of US$670 billion, US$360 billion and US$140 billion, well above the combined $16 billion of the local companies. For reference, Apple held US$164 billion in cash at last count, enough to gobble up our best companies 10 times over!
The Future Giants
Interestingly Australia's top four aren't even included in the S&P ASX 20 index of the top 20 stocks on the ASX based on market cap, liquidity and investment quality. I expect this to change over the medium term as Australian companies look to expand overseas once they've dominated the local market.
Expanding Overseas
These local tech stocks are all moving abroad rapidly to maintain growth. REA Group owns and operates real estate websites in Italy, Luxembourg and Hong Kong. Although the strategy has been a drag on earnings the expansion is expected to contribute to the bottom line in the future.
SEEK has successful job websites in Malaysia, Singapore, Indonesia, Philippines and Vietnam.
Domino's has a presence all over the world and is continuing to expand and promote the digital side of the business.
Carsales.com has a strategic stake in iCar Asia Ltd (ASX: ICQ) that owns a number of car advertisement websites throughout Asia, and has minority interests in other Brazilian and Asian websites.
The best part?
The best part is that the share price of these four companies have either been relatively flat or fallen over the last 12 months. Admittedly they all had a great run up to this point but the next phase of growth will come from overseas success.
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