L
astmonthwelookedat theburgeon-
ingASXtechnologysector.AndI
asked,“Isthereanythinghotterthan
techat themoment?”
Thismonthit’snota rhetoricalquestion.
Andyes,thereis.It’snothotterthantech,
perse,though– it’sthehottestpartofthe
hottestsector:fintech.
Fintech– financialtechnology
companies,toexplodetheportmanteau- arethenewblack.Everyoneis either
startingone,investinginoneorwishing
they’ddoneso.Thesector’sposterchild,
AfterpayTouch(ASX:APT),wentfrom
beingworthjustover$600millionin 2016
toa hefty$6.8billionat theendoflast
financialyear.Andif youthinkthat’shefty,
trycomparingthatnumbertojustshyof
$160millioninrollingannualsalesasof
thesamedate.Yes,that’s 43 timessales.
Andtheprice-earnings?Don’task– it’s
notmakingmoney,yetat least.
Theexcitementaboutthecompany,
though,hasnothingtodowithpastsales
ornon-existentearnings:it’sthehope
thatAfterpaycangraba greatershareof
Australianwalletsandhopefullyweave
someofthatsamemagicintheUS.If it can,
even 43 timestrailingsalescouldlookcheap.
BEST IN BREED Scott Phillips
Successfuldisruptorscouldprovidethatpotofgoldattheendoftherainbow
B
ScottPhillipsis TheMotleyFool’schief
investment officer. You can reach him
on Twitter @TMFScottP and via email
[email protected]. This article
contains general investment advice only
(un der A F SL 4 0 0691).Technology on steroids
Technology companies are exciting
for good reason. They are capital light
(requiring little in the way of new
investment to grow), they scale quickly and
easily (their products are mostly or entirely
virtual) and they lend themselves nicely to
network effects (each new user makes the
network disproportionately more valuable).
Fintech, then, is all of that – on steroids.
Why? Because money makes money. If
you can demonstrate all of those attributes
above, then bring them to bear while
clipping the ticket on the fast and endless
flow of (digital) cash around the economy
... well, that’s truly the pot of gold at the end
of the technology rainbow.
Whether it’s consumer spending,
business lending, virtual banking, funds
management platforms or the software
that powers the financial system, financial
technology threatens to disrupt perhaps the
most valuable gravy train in the world – and
the winners stand to benefit enormously.
Of course, that’s the hope. But it’s not all
(virtual) beer and skittles. Like flying cars
and 3D printers, just because it’s possibleFoolish takeaway
We all know Afterpay. And most of us have
heard it its competitors, Zip and Splitit.
There’s “round-up” app Raiz, sub-prime car
lender Money3, physical and virtual gift
card provider EML and platform providers
Bravura, Netwealth and OneVue. And the
“old guard” of online accounting business-
es like Xero and MYOB.
I would urge caution investing in this
area, given the lofty expectations for
fintech. But if you do want to add some
fintech to your portfolio, I’d fish in the less
exuberant areas. EML comes close, but for
proven success and quality management
Xero tops my list.doesn’t mean it’ll happen at sufficient scale
to make us all rich. The banks, credit card
companies and incumbent providers aren’t
going to just lie down.
And even then, there’ll be winners, also-
rans and flat-out losers. Some of these
niches will be winner-take-all (or winner-
takes-most) and others will become very
fragmented, restricting the pricing power
of the participants.
And then there’s valuation. It’s very
possible that some of these companies go
on to become the great businesses of our
time but still deliver sub-par returns for
investors from here because they started
at such lofty prices. Just ask Microsoft, one
of the world’s most valuable companies,
which took more than 15 years to surpass
its pre-2000 share price peak.Best in Breed’s tips so far
SECTOR STOCK ASX CODE
Banks Macquarie Group MQG
Resources South32 S32
Consumer staples Treasury Wine Estates TWE
Discretionary retail Premier Investments PMV
Healthcare Cochlear COH
Technology Elmo ELO
Fintech Afterpay APTFINTECH