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Why Tech Investors Love the SaaS Business Model


Investors love businesses that have a reputation for minting cash.


And as far as tech companies go, the Software as a Service (SaaS) model is as good as it gets. It provides predictable, quantifiable, and fast-growing revenue for any company that can execute correctly ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ and everyone from venture capitalists (like Marc Andreessen) to asset managers (like Blackrock) love investing in companies with these traits.


TodayÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s infographic from TIMIA Capital explains why this is the case.



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US market de-fanged

While the broader US earnings season is humming along with earnings up more than 20 per cent, the big news has been the "unfriending" of the tech sector, or more particularly social media players.


Facebook's $US120 billion fall on Thursday has rewritten the record books for single day capitulations by value.


The much smaller, micro-blogging platform Twitter was given the bird too, down around 20 per cent on Friday.


A lot has been written in the past few days about the rupture, but put simply, the market suddenly grasped the idea that the herculean prices being paid for some of the tech-darlings didn't match up with their merely mortal earnings growth.


The idea of cracking down on privacy issues and dodgy accounts, while seemingly a sound business practice, was a red flag for investors


The events of the last few days has certainly caused a split in the field for the tech giants' race to a trillion dollar valuation.

The FANG ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ or more appropriately FAANG; Facebook, Apple, Amazon, Netflix and Google/Alphabet ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ stocks are looking a bit toothless at the moment.


Facebook is out of the hunt for a trillion dollar capitalisation any time soon, while Netflix was lucky to even be in the same conversation.


MAGA is perhaps a better acronym for the trillion dollar tech wannabes; Microsoft, Amazon, Google and Apple. Coincidently, it also works for Make America Great Again.



Hedgeye's cartoon of the day - De-FAANG'd


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ASX tech boom - can it last?


Australia's tiny tech sector has outgunned the US digital giants this year

Key points:

ASX200 tech stocks +20pc this year while Wall Street's Nasdaq is up 9pc

Aerial imagery business Nearmap has led the way, tripling in value despite not yet being profitable

Some price valuations being driven by fund managers having to buy relatively illiquid stock[/quote]


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Fund managers would say that, since they are heavily invested in them ;)


ASX tech stocks ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ a bargain or a black hole?

by Sarah Turner

Australia's best-known technology stocks have been on a wild ride over the last few months but fund managers say that as long as investors do their homework it's a good time to take a look at the sector.


The technology companies listed on the ASX ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ Wisetech, Appen, Afterpay, Altium and Xero ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ unofficially go by the name "WAAAX". The acronym is a nod to the term "FAANG" adopted by US investors for their tech giants Facebook, Apple, Amazon, Netflix and Google owner Alphabet.



courtesy of zerohedge

FANG Stocks were hammered, worst week since March (down 4 weeks in a row) down 20% from their highs...

FB -33% from highs (well below 200DMA)


AMZN -19.75% from highs (closing below its 200DMA)


NFLX -28.8% from highs (closing below its 200DMA)


GOOGL -16.4% from highs (closing below its 200DMA)


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Dubbed the ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Norton Antivirus of the mobile worldÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ, Tech Mpire (TMP) has launched Traffic Guard, a cloud-based portal for advertisers and their agencies to weed out fake downloads and to identify safe sources for their ads. Fake ads have become just as much a problem as fake news, with companies paying billions of dollars to advertise to audiences that donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t exist.


Promedicus (PME) has taken the US by storm with its medical imaging systems that are used by two of the top four hospitals there. Homegrown export technology at its best, although the companyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s $1bn-plus market cap may deter some investors.


Citadel Group (CGL) manages the technology needs of high-quality customers mainly in the public sector. Clime CapitalÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s David Walker says CGL has delivered compound annual earnings growth of 30 per cent over the past three years and remains well positioned with an $800 million contract pipeline.


ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Internet of ThingsÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ and energy software outfit Simble Solutions (SIS) has a market cap thatÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s up to 90 per cent of its peers. But the company invested heavily in a saleable sales infrastructure during the past year and could deliver significant value in 2019.

....from The Australian's 50 ideas for 2019


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Here are seven tech stocks currently favoured by Regal Funds Management and the reasons why the fund manager likes them.


Bigtincan Holdings.

It sells a software product that enables sales and service organisations to engage with customers. Regal likes it because of consistent 35 to 40 per cent organic revenue growth from both new client wins and expanded contracts with existing customers. "It generates software as service revenue, with low churn and high lifetime customer value," Regal says.


"Recently achieved cashflow break even on a normalised basis. We believe it is undervalued, trading at only three times current recurring revenue base of $21 million."


Credible Labs.

Operates a consumer finance marketplace to help customers make better financial decisions. Regal likes it because of strong loan origination momentum and record volumes in the second half of 2018 of more than $US700 million, up 80 per cent on the previous corresponding. It now has more than 1.3 million user accounts.


"Recently launched mortgage origination platform across 34 US States, expanding addressable market to the $US1.6 trillion US mortgage market, which is 80 times larger than it's core student loan market that it currently plays in," Regal says.



It sells subscription software licenses to IT providers delivering cloud computing services. Regal likes it because it recently completed an acquisition of a highly complementary, fast growing software business âââہ¡Ãƒâ€šÃ‚¬ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ Wizdom, for an attractive price (3.5 times recurring revenue). This was substantially funded by scrip via the issuance of Livetiles shares.


"It has pro-forma recurring revenue of more than $30 million across more than 800 customers, with line of sight to cashflow breakeven," Regal says.


"Livetiles alone achieved more than 230 per cent growth year on year in annualised recurring revenue to $23 million at December 2018."



It is a deposit taking financial institution or neo bank providing transactional banking services in Australia and the European Union.

Regal believes iSignthis is at an inflection point for volumes and margin. It has obtained an ECB banking license in Europe, which now means the business is no longer reliant on third party operators to process transactions.


"Within this ââ€Å¡Ãƒ‚¬1 trillion market, ISX has a leading anti-money laundering tool and a full range of banking products, which should see its customer base expand significantly," Regal says.


"iSingthis anticipates being granted a banking license by APRA in the second quarter of 2019, which would enable it to provide transactional banking services in Australia, and make it the first wholesale/B2B neobank to receive APRA approval since PayPal."


King says Regal has also invested in three unlisted tech companies which have the potential to join the ASX through initial public offerings. These are: Life360, Whispir and Damstra.


Life360 is a US-based company that has developed a location sharing and driver safety smartphone app that seeks to protect and connect families. Ranks in the top 5 most downloaded social media apps in the US.


Whispir has developed software that assists businesses in managing their communications workflows between people, devices and systems. It operates in Australia, New Zealand, Asia and the US.


Damstra has developed an integrated, software as a service, cloud based software and hardware workforce management solution to facilitate safer workplaces and increased business efficiency.

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The latest shift by Facebook to embrace privacy as the number one issue for his company to restructure around suggests its maybe already too late. Should've been done a long time ago. Gotta feeling this is going to collapse like a house of cards. Outfits like Mega are way ahead of that curve. No wonder they wanted to take down Kim Dotcom.
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