Afterpay’s CEO thinks tech is on track to ‘flip’ mining as an ASX heavyweight
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Could Australia’s tech sector soon be better known for its corporations than our mining giants? Two of the country’s best-known and most successful tech entrepreneurs seem open to the idea.
Afterpay (ASX:APT) chairman and co-founder Anthony Eisen and WiseTech Global (ASX:WTC) chief executive and founder Richard White took part in BetaShares’ Australian Technology Investors Webcast on Tuesday, where they were asked by BetaShares CEO and co-founder Alex Vynokur whether they could see the ASX tech sector displacing resources as the local bourse’s second-biggest sector.
Materials makes up 20 per cent of the S&P/ASX200 index, behind financials at 25.9 per cent, while information technology ranks 9th out of the 11 official sectors, comprising just 4.4 per cent of the index.
“It almost begs the question, are things going to flip in the future, or what is the future going to look like?” Vynokur asked.
Neither man was willing to directly predict that tech would indeed “flip” mining anytime soon, but both had no doubt that their industry would be the ASX’s fastest-growing sector in the future.
“It’s hard to throw out a number, maybe if I can dodge that a little bit, but I think it should compound from here,” Eisen replied, referring to the tech sector’s growth.
“I think technology is unlocking new business models, you’re absolutely seeing that from a fintech point of view, but you’re also seeing it in a whole lot of other industries that relate back to consumers or merchants or sort of key stakeholders in an economy,” he said. “So you’ve got new business models emerging.
“Also, you’ve got every single traditional business in the world applying technology in a way where it’s consuming more and more of their workflow and their work practices – so every business is a technology business to some extent.”
That, Eisen said, was creating a compounding effect.
In the future, technology “should represent a much greater percentage overall [of the ASX200], whether that’s 20 per cent or 30 per cent in however many years, I can’t say, but it certainly should compound compared to other industries.”
“This is a heyday of the world that we’re living in,” he said.
“I don’t know how big the tech industry is going to be in 10 years time, but it’s going to be a lot bigger than what it is today.
“It’s going to continue its growth, it’s going to permeate everything in the world, every business will have more technology than they have today, and the growth in that will be faster in my view than any other industry, any other sector, because technology will be permeating everything.”
There’s no denying the sector’s explosive growth. Afterpay only commenced operations in early 2015 and listed in mid-2016 after an IPO that raised $25 million at $1 per share.
Today it’s Australia’s 15th largest company by market capitalisation, worth $27.7 billion. Close behind is Kiwi cloud accounting firm Xero (ASX:XRO) at 22nd, valued at $16 billion.
Its shares were trading on the ASX in 2012 at less than $5 apiece; now they’re worth more than 23 times that at $117.
Daphne van der Oord, head of Australia and New Zealand for S&P Dow Jones Indices, says that the number of companies in the XTX – the S&P All Technology Index – has more than doubled in the last five years, while the market cap has grown more than fivefold, from $17.1 billion to $135 billion.
The XTX has outpaced the broader market over one, three and five-year periods to the end of September, van der Oord told the BetaShares webinar.
Daniel Petre AO, co-founder and partner of Sydney-based AirTree Ventures, told the webinar that the Australian tech sector was dramatically different than it was a decade ago when there was very little capital supporting tech companies.
Now many investors want in on that potential for growth.
The cost of starting up a business has gone down dramatically, he said. Although though the country doesn’t have the deep pool of tech talent that exists in Silicon Valley or Israel, there’s no reason why Australian companies can’t compete globally.
“We can play in the market, you look at what we’re doing in fintech, you look at what we’re doing in healthcare, you look at what Airtasker’s doing, we can play in any market in the world,” he said.
Max Cunningham, the ASX’s executive general manager for issuer services and investment products, told the webinar there were solid reasons for tech investors to invest locally rather than abroad on bourses like the NASDAQ.
In the United States, becoming listed on a stock exchange is so complicated that it’s out of reach of smaller companies, and retail investors get cut out of that potential for early-stage growth, he said.
The ASX allows much smaller tech companies to list, Cunningham said, citing companies like Afterpay, Altium (ASX:ALU), Carsales.com (ASX:CAR) Xero and WiseTech as businesses that listed as young companies and have gone on to compete on the global stage.
“That’s a great example of what a homegrown market can do for companies and investors,” he said.
Investing locally also increases liquidity and reduces the cost of capital for these businesses, helping them grow, he added.