3 ASX 200 tech shares with mission-critical products

The stickier the product, the harder it is to give up…

| More on:
a group of people sit around a computer in an office environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

I love investing in ASX shares that provide mission-critical products. Companies with products so deeply embedded and vital in their customers' operations that they're hard to give up.

These products are sticky, contributing to high levels of customer retention and recurring revenue. This stickiness can also act as leverage for lucrative pricing power.

With that in mind, let's take a look at three ASX 200 tech shares that, in my view, provide mission-critical products.

WiseTech Global Ltd (ASX: WTC)

Kicking things off, WiseTech is a leading provider of freight forwarding software through its flagship CargoWise product.

CargoWise is an all-in-one logistics platform used by 10 of the top 25 global freight forwarders.

Companies like Toll and DHL rely on CargoWise to execute complex logistics transactions and manage their freight operations from a single platform.

Demonstrating its stickiness, CargoWise boasts an enviable customer retention rate of 99%. In fact, the software platform has recorded less than 1% customer attrition every year for the last 10 years.

Due to the nature of the product, it's no surprise that a large majority of WiseTech's revenue is recurring. This figure sat at 89% in FY22, contributing to WiseTech's stable and predictable revenue streams. 

Xero Limited (ASX: XRO)

Next up is Xero, a pioneer of cloud-based accounting software that plays an integral role in the operations of its small to medium-sized business customers.

Xero is best known for its bookkeeping solution. But it can also handle everything from invoicing and payroll to inventory, quotes, and purchase orders.

This entrenches Xero into its customers' workflows, adding more value than the monthly subscription fees it extracts.

These subscription fees have only been heading higher over time, with minimal effect on customer retention. In other words, Xero has flexed its pricing power to great effect, with a consistent stream of new features also helping customers to stomach the steeper fees.

In Xero's most recent 1H23 results, the ASX 200 tech share reported average revenue per user (ARPU) of NZ$35.30, up from NZ$31.32 in the prior corresponding period. Meanwhile, churn remained stable at 0.91% of monthly recurring revenue.

As I've highlighted previously, I believe Xero is a business with terrific unit economics.

Altium Limited (ASX: ALU)

Altium rounds out this trio of ASX 200 tech shares that provide mission-critical products.

Coincidentally, all three of these companies are part of the once-infamous 'WAAAX' group of ASX tech shares.

Altium provides software for the design of printed circuit boards (PCBs). 

PCBs are those little boards (most commonly green in colour) that house a bunch of electronic components, such as chips and resistors.

These boards sit inside almost every electronic device, from cars and home appliances to mobile phones and manufacturing equipment. 

As you can imagine, there are a lot of intricacies involved in designing a board that mechanically supports and electrically connects a range of different components. 

This is where a PCB design software tool, such as Altium's flagship Designer product, enters the fray. 

Altium considers Designer as the default software tool of choice for electrical engineers, from those studying at university to those working at world-class companies, such as Tesla Inc (NASDAQ: TSLA) and ResMed CDI (ASX: RMD).

So not only is Altium Designer a mission-critical product, but it's also an industry-leading tool that benefits from a reinforcing loop. University students are trained to use Altium's products, and companies require their engineers to be proficient with these products, which only reinforces Altium's prominent position.

Motley Fool contributor Cathryn Goh has positions in Altium, ResMed, and Xero. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, ResMed, Tesla, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended ResMed, WiseTech Global, and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Technology Shares

Up 60% in two months, is it too late to buy Pro Medicus shares?

Pro Medicus has been delivering solid returns for years. Can the trend continue?

Read more »

Group of people in a gym high five each other surrounded by gym equipment.
Mergers & Acquisitions

This ASX tech stock is hitting a record high on acquisition news

The market is responding positively to this news. Let's dig deeper into it.

Read more »

A man in a suit face palms at the downturn happening with shares today.
Technology Shares

Guess which ASX 300 share is crashing 17% on shock news

Investors are rushing to the exits on Thursday. Let's find out why.

Read more »

Cheerful boyfriend showing mobile phone to girlfriend in dining room. They are spending leisure time together at home and planning their financial future.
Technology Shares

These were the best ASX 200 tech stocks to buy in May

Shareholders of these shares were smiling last month. But why?

Read more »

A woman smiles as she sits on the bus using her phone and listening to music through headphones.
Technology Shares

Here's why I think these ASX tech shares are buys in June

These stocks have loads of potential.

Read more »

A young man wearing a black and white striped t-shirt looks surprised.
Technology Shares

Why did the Life360 share price rocket 51% in May?

This ASX 200 stock smashed the market last month with an incredible gain.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Up 30% since April, are Xero shares still a buy?

Xero shares have surged 30% since April, but can this SaaS leader's share price keep rising?

Read more »

A man and a woman sitting in a technology-related work environment high five each other while the man wears headphones around his neck and the woman sits in front of a laptop.
Share Market News

Strong gains for Wisetech, TechnologyOne, and Catapult amid ASX 200 tech sector lead

ASX technology shares led the market with a 3.85% increase while the ASX 200 lifted 0.88% last week.

Read more »