The Rocket Lab headquarters in Mt Wellington, Auckland. Photo / Dean Purcell
The Rocket Lab headquarters in Mt Wellington, Auckland. Photo / Dean Purcell
Opinion
COMMENT:
Big tech got the thumbs up emoji last week with Apple, Amazon, Facebook and Google shaking off the distraction of US regulatory scrutiny and advertising boycotts with better than expected earnings.
And at a combined value of US$5 trillion ($7.5t) with balance sheets that read like the GDP fora medium-sized country, that matters to global markets.
Apple, Amazon and Facebook all notched up double-digit sales growth. And while Google's parent, Alphabet, posted its first quarterly advertising decline, it was still better than analysts were picking.
Those stocks helped the tech-heavy Nasdaq keep its head above water, despite data showing the US economy is in the middle of its worst quarterly contraction since the 1930s.
Closer to home, New Zealand's top 200 tech sector companies generated revenue of some $12.1 billion, up more than $1b last year on the back of export markets. In the context of Google and Facebook it's paltry, but tech is closing the gap with tourism and primary sector receipts. Those top 200 also employ more than 51,000 people around the world.
Greg Shanahan, Technology Investment Network managing director, said the sector was already going to leapfrog tourism this year, "with or without Covid," and now aims to surpass dairy's $15.1b of annual exports.
While publicly-listed companies accounted for about 45 per cent of all funding, private equity or venture capital investment "weren't that far behind," at about 36 per cent, he said.
That was about $112 million last year, reflecting a dip from 2017 and 2018 when space pioneer Rocket Lab had attracted significant funding.
Shanahan has already noted a "significant uplift" in average deal size this year, although firms that transitioned to the listed market found it easier and quicker to raise capital.
"If your story is right and the execution plan is right, investors will back it," said Darrin Grafton, founding chief executive of online travel booking app maker Serko.
Covid threw a spanner in the firm's growth plans, but Grafton said there were investors for every type of risk scenario. "Investors have a level of tolerance that they'll come in on, so you need to work on the story around that."
Darrin Grafton, founding chief executive of Serko. Photo / File
The major advantage of being listed was speed and efficiency when raising money. "You can execute a capital raise within three days as you are fully exposed to the market and are constantly at a level of compliance required by the due diligence process."
"The biggest process is getting the strategy right about why you need the money and how that is articulated into the market."
Nor has Covid slowed "angel" investment, tracking at $100m so far this year. That includes US$40m of international investment going into AI "humanising" firm Soul Machines, $34m for event data company PredictHQ and $14m to small business mobile networking firm Spoke Phone.
But Covid-19 has shifted the goal posts.
Online footprint
The country's biggest IT firm, Datacom, believes it's well placed in a world where a firm's online footprint has become vital.
The private company, 39 per cent-owned by the NZ Super Fund, operates on skinny margins. It reported a March-year net profit of $19m on revenue of $1.34b.
Chief executive Greg Davidson said Covid "changed everything," with his customers accelerating their shift to digital for fear of being locked out entirely.
The firm had reinvested heavily in services its customers wanted, and while Davidson said that will continue this year, Datacom was sufficiently capitalised to declare a $4m final dividend on top of the $4m first-half pay-out.
Pushpay was another over-achiever through Covid but for different reasons. The NZX-listed firm offers church tithe and donation software, with the vast majority of its business in the US. It's now worth about $2.2b after its shares tracked a growing congregation of users.
Forsyth Barr analyst Jamie Foulkes rates the stock an 'outperform' on the back of a digital solution for churches to stay connected to parishioners shuttered at home.
In December, Pushpay also bought management software firm Church Community Builder to create a full-service software offer. Foulkes has a $12.42 target price, a fair step up from the recent $7.95 price, which is itself a 139 per cent gain over the past 12 months.
Disruption is key
TIN's Shanahan said Covid and its washout could be "extremely positive" for the competitiveness of domestic tech players. "The same things that make NZ attractive apply to the sector – we need to be cohesive, agile and respond collaboratively."
The true opportunities are in areas ripe for disruption. "If you look at the future, we'd look at healthcare, because of the pressure of healthcare spending, we'd look at agritech, due to pressure on food production."
"The NZ industry is now hitting scale. More than 50 of our top 200 have revenues of more than $50m and that makes them more attractive across both public and private investors."
