The ASX tech stock sector has taken a real whacking in 2022. Despite plenty of names displaying solid revenue growth over the last couple of years, they have been among the worst performers this year.
However, when a bull market eventually comes back, we could see some of these fallen former darlings be the ones that outperform as they recover.
The below three businesses may be contenders to consider for a medium-term to long-term investment after they all fell more than 50% this year.
Xero Limited (ASX: XRO)
Xero has seen one of the biggest declines in the S&P/ASX 200 Index (ASX: XJO) in 2022 to date. The cloud accounting software company has dropped 52%, closing on Monday at $70.63 a share.
While Xero may be suffering from the higher interest rates, investors may also be somewhat concerned about its subscribers, which are small and medium enterprises, in a downturn. However, I think Xero's subscription fee is relatively small, but integral for business operations, so I believe customers will keep paying it.
Plus, subscriber numbers and average revenue per user (ARPU) continue to grow for the ASX tech stock. In the FY23 half-year result, subscribers grew 16% to 3.5 million, while ARPU went up 13% to $35.30. This helped operating revenue jump 30%. With the company having such a high gross profit margin, I think ongoing revenue growth could change people's minds about the business when investor confidence returns.
Megaport Ltd (ASX: MP1)
The company says it's a global ASX tech stock that is at the "leading edge of cloud connectivity". It helps customers adopt cloud infrastructure, and enables them to quickly increase their usage, if needed.
The Megaport share price has declined by around 65% in 2022 to date to its current price of $6.72.
In the first quarter of FY23, Megaport saw monthly recurring revenue (MRR) rise by 9% quarter on quarter to $11.6 million. Excluding foreign currency changes, underlying MRR increased 6% to $11.3 million. The ASX tech stock achieved a profit at the earnings before interest, tax, depreciation and amortisation (EBITDA) level, which is a positive sign for FY23.
At the recent annual general meeting, Megaport CEO Vincent English said:
Our network infrastructure expertise allowed us to build and operate one-of-a-kind highly efficient global network with healthy operating leverage built-in. With the continued rapid growth in the cloud connectivity space, we have the scale and capital position necessary to drive our business to profitability. This will be a key focus in fiscal year 2023 as we leverage our channel programmes and operational efficiency.
Frontier Digital Ventures Ltd (ASX: FDV)
This is the smallest ASX tech stock of the three in this article, with a market capitalisation of $270 million, according to the ASX.
Frontier Digital Ventures is a company that owns and operates online marketplace businesses in fast-growing emerging markets. Its portfolio consists of 16 "market-leading companies operating across 20 markets" in Latin America, Asia, and the Middle East and North Africa.
While there will sometimes be a mixed performance with that many different businesses, collectively, the company is seeing growth. The third quarter of 2022 saw record quarterly EBITDA on the company's ownership share basis, doubling the previous quarterly portfolio EBITDA. All three operating regions saw positive EBITDA for the first time.
It's focused on keeping a lid on costs, improving the financial profile and profitability of the overall business during this uncertain period.
Despite the improving profit, the Frontier Digital Ventures share price is down 55% in 2022.
The broker Morgans thinks it's a buy, with a price target of $1.28. That suggests a possible rise of around 80% over the next year from its current price of 71 cents.
