ASX tech shares could be the right place to find opportunities in January 2022.
There has been a lot of volatility over the last couple of months, with some businesses dropping (close) to multi-month lows.
High-quality businesses that are growing quickly with big margins could be very attractive for the long-term after a bit of a bump.
Keeping that in mind, here are two leading ideas:
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Xero Limited (ASX: XRO)
Xero is a leading cloud accounting business with operations globally. It has a sizeable presence in several places including Australia, the UK, New Zealand, the USA, Singapore, and South Africa. Canada is another country where Xero is aiming to build a large presence.
In terms of the profit margin, it isn't making much of a net profit because the ASX tech share is prioritising the long-term by re-investing for growth.
However, Xero does have a very high gross profit margin. In the first half of FY22, that margin increased 1.4 percentage points to 87.1%. This means that most of the revenue falls to the earnings before interest, tax, depreciation and amortisation (EBITDA) line.
In terms of growth, Xero is rapidly growing operationally and this is coming through in the financial numbers.
Subscribers are growing. They're up 23% to 3.01 million for HY2022. Australia and the UK are Xero's two largest subscriber regions, with Australia accounting for 1.24 million and the UK hosting 785,000 subscribers.
Subscription growth is helping annualised monthly recurring revenue (AMRR) rise even faster, growing 29% to NZ$1.13 billion. This was also helped by a 5% increase in the average revenue per user to NZ$31.32.
Xero has been making acquisitions to add significant product and talent capabilities to Xero, as well as create new revenue streams and enter new categories. Three of the ASX tech share's acquisitions have been Planday, Tickstar and Waddle.
The Xero share price is at a multi-month low.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara Health is a healthcare business that offers a breast health platform. Its software can be integrated into various clinics to cater for risk analysis, decision making, administration, and so on.
It has already built a large market position in the US through both organic growth and acquisitions such as CRA Health. Around 34% of US women who have had a breast scan had a Volpara product applied on their images and data.
Volpara has an even higher gross profit margin than Xero. In the first six months of HY22, the margin was 91.4%. Revenue is also growing very quickly – there was an increase of 30% to NZ$12.3 million in the first six months of FY22 (it was a 38% increase in constant currency terms).
The ASX tech share is continually attracting accolades with certifications and peer-reviewed articles.
Volpara is working on expanding its electronic health record (EHR) sales channel as well as increasing its average revenue per user (ARPU).
Over the long-term, growth in its lung screening software could lead to this segment developing into a sizeable part of the business. It thinks the lung screening market in the US alone could be worth over US$400 million of annual recurring revenue (ARR).
In FY22, Volpara is expecting revenue to grow by over 25% to be more than NZ$25 million.
The Volpara share price is close to its 52-week low.
