Funding cuts leave tech to grow it alone

Resources Corner

The technology sector is a growing pool of diverse companies that trade on innovation and entrepreneurship. The ASX is seeing more and more listings from the tech industry as investors become more sophisticated in their ability to value these unique stocks. 
 
As the mining boom wanes some have made assumptions that attention would turn to supporting the tech sector to fill the gap. The Federal Budget, however, took the razor to a number of assistance programs, defending the move by saying the government would refocus on innovation and self-reliance.
 
National ICT Australia (NICTA) is one such organisation that will lose its funding. However, soon after the budget’s announcement, the organisation inked a major talent sharing partnership with Telstra.
 
Quickflix continues to seek growth with content sharing deals with Xbox One, Google Chromecast and Dick Smith.
 
Aussie stocks, Moko Social Media and Technology One, have both posted strong earnings results. 
 
Budget impacts
 
The Federal Budget has sought major savings by cutting funding to Commercialisation Australia, the Venture Capital Assistance Program and the Innovation Investment Fund (IIF). NICTA will also have its funding cut in 2016. 
 
In their place will be one integrated program called the Entrepreneurs’ Infrastructure Programme. As was explained in the federal budget papers;
 
“A new approach to industry policy will be implemented through the $484.2 million (over five years) Entrepreneurs’ Infrastructure Programme, which will improve the capabilities of small to medium enterprises and streamline business access to Government programmes.”
 
“The programme will focus on supporting the commercialisation of good ideas, job creation and lifting the capability of small business, the provision of market and industry information, and the facilitation of access to business management advice and skills from experienced private sector providers and researchers.”

Detials on the program's funding streams and its management have not yet been made clear. 
 
Commentary
 
This week Finance News Network spoke with Matt Barrie, CEO and Chairman of Freelancer.com, an online outsourcing marketplace. The company listed on the ASX late last year and Mr Barrie has a wealth of knowledge about the challenges facing tech stocks in Australia.
 
“There’s a huge amount of appetite for tech stocks on the ASX. After the GFC there’s a lot of money looking for high growth opportunities that’s not a resources company in order to avoid the fluctuations of commodities prices.”
 
Mr Barrie didn’t feel the budget cuts would impact the sector a great deal as the programs were either too small or badly designed.
 
“The IIF is a drop in the pan. It’s a $25 million co-investment, it’s nothing. To really make a change the government would have to put up something like $2 billion, like Singapore; but no government’s willing to do that for some reason.”
 
Mr Barrie sees crowd funding and tax relief as being more efficient.
 
“The best way you’re going to fund companies in Australia is crowd-funding and we do that regularly with resources, it’s called the ASX. But it needs reform; I’m pretty confident Malcolm Turnbull will reform crowd-funding equity rules.”
 
“I think taxation reform is the key, if the general public does invest in these things there should be tax relief both, in the year that you do the investment in risky tech companies, and cap gains relief for the first three years. Plus, if you dust your money on it there should be relief as well. That’s the UK model.”
 
Partnerships for growth
 
Quickflix Limited (ASX:QFX) has launched a movie and TV streaming service on Xbox One. The online movie service will offer standard and high definition TV shows and movies on its streaming network directly to subscriber’s Xbox consoles. The company says its streaming service has been growing 20 per cent per quarter through adding new content and new devices to its network.
 
The company has also announced it will be shortly launching its streaming service for Google Chromecast. Quickflix expects to be one of the first subscription movie and TV streaming services available on Chromecast in Australia. 
 
While Electronic retailer Dick Smith Holdings Limited (ASX:DSH) has also teamed up with the movie DVD rental and streaming company offering a Quickflix gift card with Dick Smith in store purchases of $100 or more. 
 
Telstra Corporation Limited (ASX:TLS) will partner with the research institution, National ICT Australia, in a multimillion dollar collaboration. Australia’s largest telco will partner in areas as diverse as security, privacy, smart network planning and future media delivery. The company says the Research Partnership Program complements Telstra’s existing innovation agenda, which includes the muru-D startup incubator and the Telstra Ventures Group.
 
Provider of information technology solutions Data#3 Limited (ASX:DTL) has partnered up with Australian education software specialist The Alpha School System (TASS). The deal combines the core skills and capabilities of both organisations to provide administration and information solutions to the Australian education sector. The solutions are focussed on data analytics to drive real-time decision making, identity management and work flow automation. 
 
Solid sales growth
 
Shares in Moko Social Media Limited (ASX:MKB) jumped against a benchmark fall after posting a positive market update. The Australia-based integrated global social media company says its US Mobile advertising business unit has generated almost 250 per cent sales growth this year. Its announcement comes after Moko Social Media filed for a $10 million listing on the US tech-heavy Nasdaq index. 
 
Australia’s largest publicly listed software company Technology One Limited (ASX:TNE) has reported a 17 per cent increase in half year profit before tax. The company has managed to sign an increase of new customers and has expanded its business in the UK. Licence fees are up by 24 per cent. Full year guidance is on track to deliver 10 to 15 per cent growth in earnings. Technology One also lifted its half year dividend by ten per cent to 1.95 cents per share fully franked. 
 
-- John Treadgold