Enterprise software firms like Atlassian hot stocks of future: US tech fund Tekne

Enterprise software firms like Atlassian will beat consumer tech firms as hot stocks of the future, says a US fund manager.

Beeneet Kothari, managing partner of NY hedge fund Tekne Capital.

Enterprise software companies such as Australian trailblazer Atlassian will increasing replace consumer-focused technology firms as the hottest tech stocks of the future, according to a leading New York fund manager.

Beeneet Kothari, managing partner and principal portfolio manager of technology investment firm Tekne, said he believed technology processes rather than tech products would become the prime drivers of businesses across the global economy in the future.

“What has got the most attention and value over the past five years has been consumer technology stocks. I think what hasn’t got the appropriate attention has been the non-consumer portion of technology, which is called enterprise technology,’’ he told The Australian ahead of his appearance at the annual Sohn Hearts & Minds investment conference in Melbourne in November.

Tekne already counts some wealthy Australian families as its clients and is looking for more.

“I would venture to say that the next set of hundreds of billions of dollars worth of value creation will come from companies that help other companies. For most companies, software often still represents less than 5 per cent of their capital expenditure.”

Mr Kothari said the data being compiled on clients by software companies and the relative underpricing of their offerings compared to what they could potentially charge put them in a tremendous position to leverage their pricing power in the future.

“They will show up three years from now to say ‘Hey customer, we have learnt these things from your data’.

“When I look at the category as a whole, I think it is massively mispriced,’’ he said.

Shares in the Nasdaq-listed Atlassian, a software company that specialises in productivity and collaboration tools for businesses around the world, have soared to a record high after it announced the $US295 million ($412m) purchase of start-up firm OpsGenie.

“Programmers 10 years ago were juniors, they didn’t get much say in their companies. There has been a dramatic shift in that today. In a modern company the IT staff and programmers within that organisation are more empowered than ever before, and a programmer today has the ability to dramatically shift how that company spends its money. As much or even more than the CFO,” Mr Kothari said.

“I think the big quiet revolution that Atlassian and a bunch of other companies are taking advantage of is they have secretly created C-level equivalent customers around the world.”

Despite his belief in software stocks, he said Tekne was not an investor in Atlassian, having missed the opportunity to buy it at a cheaper price.

“Even great businesses can become less than great investments if you buy them at the wrong price. We have to find the next Atlassian at a good price,’’ he said, noting the firm was an investor in online payments provider PayPal.

But Tekne has also backed consumer-focused tech stocks such as Facebook and Alphabet (Google’s parent), which have come under pressure ahead of their before the US Senate this week to explain their consumer data privacy practices.

Shares in Apple, Twitter, Amazon, Google and AT&T have all fallen during September, weighed down by the prospect of stricter data regulations

But Mr Kothari said history showed that increased tech sector regulation had actually emboldened and strengthened the incumbents.

“It is quite hard to go from speech to legislation. These are global businesses, they live in 50 jurisdictions around the world. It becomes quite different to formulate legislation that can microscopically affect Google and Amazon but not a start-up tech company at the same time,’’ he said.

“The probability of execution is probably not as high as people worry about. By the time Washington figures out there is a problem, technology has moved on.”