I just watched The Social Dilemma, the Netflix documentary about the evils of social media. What a wake-up call about the potential risks of social media, especially to the young.
Some might argue The Social Dilemma is based on conspiracy theories by disgruntled ex-tech employees. Others could say the documentary sensationalises the issue.
My take: the documentary raises real concerns about tech giants fuelling social media addiction and distorting information searches to boost their advertising revenues.
What’s that got to do with an investment column? It’s valid to ask whether responsible investment funds – and the trillions they oversee – should do more to engage with tech giants on reducing social media addiction. These funds avoid tobacco, alcohol, pornography and other addictions, so why not social media, which is potentially more damaging?
It’s also valid to ask whether greater oversight of big tech is needed and whether some of the biggest players need to be broken up, given their power to shape and trade human futures.
Who knows the answers to these questions? One certainty is that business models built on arguably unethical practices are unsustainable. And that investors who assume big tech will keep rising, year after year, are underestimating growing risks associated with social media addiction.
The share market has shown less love for big tech in recent weeks, not because of a documentary but because the sector looked overvalued at its peak.
Renewed fears of COVID-19 lockdowns overseas are weighing on equity markets. So, too, uncertainty with the US Presidential election in early November. With global equities in their seasonally weak September/October period, a quick market rebound to the previously peak seems unlikely.
I suggested last week in this column [1] not to buy tech as a sector trade: “I wouldn’t be buying tech Exchange Traded Funds (ETFs) during this sell off, in anticipation of tech indices quickly recovering lost ground and scooting to new heights. Tech valuation risks are too high.” My preference was selective tech companies that had lagged the rally since March.
The Nasdaq has fallen a few percentage points since that column. There’s been a bit more interest this week in supposed “tech safe havens”, but I still wouldn’t aggressively buy the sector.
Don’t get me wrong, I like the long-term outlook for the technology sector (notwithstanding social media addiction). My best idea this year was buying the tech sector via ASX-quoted tech ETFs, and Australian tech leaders such as Xero, during the peak of the March sell off.
With that in mind, I continue to plough through the Australian tech sector for value. It’s hard to find, but there is opportunity, if you look hard enough.
Here are two companies that stand out after recent falls. Both are small cap companies that suit experienced investors who are comfortable with speculation.
1. Atomos (AMS)
The technology company makes software and hardware for video content. Its mission: to enhance, simplify and democratise global video content creation.
Atomos is in an interesting field. The market for video content production tools has good long-term growth prospects as more communication is consumed via video.
Who wants to read pages of dense text when a snappy corporate video can do the job in a fraction of the time? Or take and store hundreds of family photos when one can take videos and use video editing software to elevate content production standards?
Let’s be honest: readers might prefer the ideas in this week’s column through a short video rather than a 1,200 word feature. Thankfully, the world is rapidly moving to more video and audio, and fewer slabs of heavy text. That’s good for video technology providers.
Atomos has had its challenges. Its revenue grew 50% in FY19 and it looked like the company was on the cusp of faster growth. COVID-19 halted that momentum. Atomos’ FY20 revenue fell 17% over FY20 because of lower demand for its technology during the pandemic.
Atomos said in its FY20 result that July and August revenue was up significantly. The company expects to return to pre-COVID-19 sales levels by the start of calendar year 2021.
Understandably, Atomos had caveats about COVID-19 uncertainty and its effect on demand. But it looks like the company is recovering from its sales downturn this year.
Atomos’ key market segments will continue to produce more video content. The consumer/prosumer market will develop extra video content for social media platforms (unfortunately); the pro-video market (companies, universities etc) will create video for meetings, events, lectures, tutorials and the like. And streaming video services will need more content from entertainment production companies that use Atomos software.
Atomos fell from a 52-week high of $1.82 to 24 cents in March. It has recovered to 64 cents, but has badly lagged the broader tech rally this year. That could be an opportunity to put Atomos on watchlists. If its sales recovery continues, the market will have to watch Atomos more closely.
Chart 1: Atomos
Source: ASX
2. Dubber Corporation (DUB)
Dubber provides cloud-based, call recording and voice Artificial Intelligence (AI). A small business, for example, can use Dubber software to record and search every customer call.
A larger company might integrate Dubber software into its Customer Relationship Management software to record customer calls and search for them digitally. The company could analyse sales call conversations to improve customer service and compliance.
Like Atomos, Dubber is in a long-term growth market. One can imagine more companies using AI for recording, transcription, storage, search and analysis of customer conversations. Or using Dubber to record and transcribe company meetings.
There are obvious benefits for sales performance, customer service, compliance and productivity using AI, compared to manually logging sales calls, relying on paper-based trails of customer calls, and hoping busy managers analyse the data and enforce compliance.
Dubber had strong growth in FY20, off a low base. User numbers more than doubled to 192,544 over the year. The company’s business model is highly scalable because its service is deployed at a telecommunications network level, rather than an individual business level.
For example, Dubber software in August moved to general availability for Telstra customers who sign up to Dubber services. The company’s network distribution model is a clever twist for software-as-a-service companies that typically sell directly to end users.
Dubber fell from a 52-week high of $1.76 to 38 cents in March. The stock recovered to $1.40 in August but has since drifted to 98 cents on no company news. Thorney Technologies, a savvy tech investor, increased its Dubber holding in mid-September.
I suspect Dubber shares ran too far, too fast in the leadup to the company’s FY20 result in August – yet another case of “buy the rumour, sell the news” in an emerging tech stock.
Whatever the reason for the share price weakness, AI technology that automatically records and transcribes customer calls, company meetings and other speech is the future.
Chart 2: Dubber Corporation
Source: ASX
Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at 22 September 2020.