The word ’unprecedented’ has been used a lot this year, and for good reason. 2020 will always be remembered as the year the world changed because of a disease called COVID-19.
In the midst of the global turmoil – both economic and societal – it’s heartening to be in New Zealand where our (mostly) effective management of the disease has enabled our economy to start bouncing back sooner than it might have. While significant challenges still lie ahead, investors should take heart from the significant opportunities that now exist here within our technology sector.
The NZ tech export sector has grown primarily because of technology-enabled business models, rather than the technology opportunity per se. This has allowed companies to scale and become profitable with strong cash flows, which in turn has attracted broadening interest from investors, many of whom were previously reluctant to invest based on the technology opportunity alone.
"In future, cloud computing companies will utilise AI (artificial intelligence) to add even more valuable customer insights as the customer network and volume of data grows.”Greg Shanahan - Managing Director, TIN.
Whilst total revenue for the TIN200* Companies (NZ’s 200 largest technology exporters) grew by 10% in 2019 to $12 billion, EBITDA (net income) grew by 16% and by a staggering 58% for ICT companies. Notably, listed companies led that growth, accounting for 25% TIN200 revenue in 2019, but 45% of the $1.1 billion revenue growth.
Fortunately, as many tech companies achieved scale prior to COVID-19, they not only began to deliver metrics that could be understood by any investor, but exhibited qualities that set them apart from non-tech stocks. In particular, the ‘business as a service’ model delivered high recurring, predictable revenues, strong cash flows, sticky customers, marginal cost of new customer acquisition, faster growth and greater profitability.
This move to profitability was almost prescient, in how it anticipated the cold winds of an economic slowdown and ensured these companies either had balance sheets or investor support to last the COVID-19 economic winter, of 18-24 months that is expected.
Consequently the growth in market capitalisation of many listed TIN companies over the past 12 months, including the COVID-19 period, has been extraordinary. In the 12 months to 29 July 2020, the following share price increases for listed TIN companies were observed; Pacific Edge +289%, Pushpay +140%, F&P Healthcare +111%, Xero +48%, AFT Pharmaceuticals +30%.
This presents an immense opportunity for the NZX, because demonstrating that we can build really big, resilient successful companies will attract more local and foreign investors in Kiwi technology companies, and that will ultimately propel the tech sector to become the largest export sector in New Zealand, transforming our economy as a result.
Kiwi investors are increasingly voting with their wallets and being rewarded for it as our economy morphs through the COVID-19 sea change. The ultimate outcome of this will be to propel the tech sector to become the largest export sector in New Zealand. That’s an outcome that’s going to have long-term benefits for New Zealand as a whole – both economic and societal. Let’s make sure we don’t lose sight of that in the midst of the current COVID-19 challenges.
*The TIN200 is the combined TIN100 and Next100 (1-200) companies ranked by revenue in the annual TIN Report.
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