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Key points
- These two ASX 200 tech shares have global growth plans, giving them very large addressable markets
- Altium is one of the world-leading electronic PCB software businesses. It's making electronic design more convenient for clients and more profitable for the ASX share
- Xero is one of the leaders of cloud accounting software
The S&P/ASX 200 Index (ASX: XJO) may not be known for its technology shares, but there are some wonderful examples of ASX 200 growth shares in the software sector here.
Businesses that are looking to become world leaders at what they do could be attractive ideas to consider.
The recent ASX share market correction has given us the opportunity to look at strong businesses with plenty of potential:
Altium Limited (ASX: ALU)
Altium is a leading business in the electronic PCB design space. It has several products and services that the global electronics design industry can use, such as Altium Designer and Octopart. The company serves teams of all sizes from large design teams down to just one-person operations.
This business is looking to dominate and transform the industry. It's looking to capture enough market share to be able to dictate how the sector will look going forwards – like Microsoft did with its office software.
Altium is also looking to shift to cloud operations with its Altium 365 offering so that engineers can collaborate from anywhere. This could be useful in today's home-working revolution. The ASX 200 tech share continues to see more clients move onto Altium 365.
It claims to already have the most widespread PCB design tool – Altium Designer – and PCB designers will be able to connect to the wider engineering ecosystem using the company's Altium 365 and Nexar offerings.
The company continues to grow revenue and has a longer-term goal of US$500 million of revenue. Scale and recurring revenue will help it earn higher margins and it's also paying shareholders with bigger dividends every year.
Xero Limited (ASX: XRO)
Xero is one of the largest technology businesses listed in Australia, with a market capitalisation of $16.3 billion (according to the ASX).
This ASX 200 software share provides leading cloud accounting software. The aim is for accountants and business owners to be able to collaborate easily and that the accounting/business functions are easy to use, whilst also saving tons of time.
Xero has not had the success in the US that it was probably hoping for, but it's quickly growing in many other places including the UK, Australia, New Zealand, South Africa and Singapore. Xero recently carried out a bolt-on acquisition to boost its prospects in Canada.
One of the main strengths of Xero is that it has a very high profit margin, which increased from 85.7% to 87.1% in the FY22 half-year result. This strong margin allows most of the revenue to turn into gross profit, enabling the business to re-invest heavily for more long-term growth.
The total lifetime value of Xero's subscribers continues to grow thanks to subscriber growth, strong customer retention and growth in the average revenue per user (ARPU). The HY22 ARPU rose by 5% to $31.32, subscribers increased 23% and the total lifetime value of subscribers soared 61% to $9.94 billion.
