I think Pushpay Holdings Limited (ASX: PPH) could be the best small cap growth share to buy on the ASX.
If you haven't heard of Pushpay before that's okay, it provides a donation management system to the faith sector, non-profit organisations and education providers in the US, Canada, Australia and New Zealand.
Its share price is currently down 6% at the moment, but it's still up 8.2% over the past month.
Why is the Pushpay share price down 6%?
Pushpay announced its December 2018 quarter result this morning. Some of the items we already knew about from earlier announcements, but others were new.
Pushpay's total revenue increased to US$27.7 million for the quarter, which represents an increase of 35.2% over the prior corresponding period.
There were several drivers of the increase in revenue. Average revenue per customer (ARPC) in the key December quarter increased by 25.6% to US$1,548 and total customers grew by 5.5% to 7,585.
As a result of the growth, annualised processing volume went up 28.6% to US$5.1 billion during the integral Christmas quarter.
The pleasing thing about this strong quarter is that it pushed both earnings before interest, tax, depreciation, amortisation & foreign currency gains/losses (EBITDAF) and cash flow into positive territory. Pushpay is now confident it will have positive cashflows on an ongoing basis.
Why is that so important? Technology businesses are at risk of repeated capital raisings until they get to cash-breakeven status. Indeed, Pushpay is now thinking ahead about how it can boost operating leverage and help future acquisitions.
Another useful statistic that we learned was that the gross profit margin will be over 60% for the full-year to 31 March 2019, not just the half-year to March 2019. A higher profit margin is a good sign!
The operating leverage is indeed strong for Pushpay – revenue grew by 35% but staff levels grew by less than 4% compared to a year ago.
Pushpay's Outlook
Pushpay reaffirmed its revenue guidance of US$97.5 million to US100.5 million for the March 2019 year, along with a gross margin above 60% and positive EBITDAF.
The company also re-iterated the long-term opportunity looks attractive. It wants to achieve US$10 billion in annualised processing volume – which would be less than 10% of annual giving to religious organisations in the US. There are plenty of other sectors, such as non-faith charities that Pushpay could benefit from.
Over the longer-term Pushpay is targeting over 50% of the medium and large church segments, which could be an opportunity representing over US$1 billion in annual revenue.
Foolish takeaway
It's important to not get carried away with sky-high type predictions, but Pushpay is doing very well at growing the business.
I wouldn't want to make Pushpay a large part of my portfolio but there is potential for Pushpay to be one of the next great tech stories from Australia and New Zealand taking on the world.
