ASX tech shares have excellent growth potential because they can expand quickly while earning high margins.
When we can identify ASX small-cap shares with good growth potential, we can hold them for the long term as they hopefully become a much bigger business.
While there's likely to be volatility along the way, I'm excited by these two stocks.
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Airtasker Ltd (ASX: ART)
Airtasker says it operates Australia's "leading online marketplace for local services".
It enables people and businesses with tasks to find someone to complete them for a fee. Almost any task can be advertised with Airtasker, including cleaning, car work, delivery, various handyman tasks, furniture assembly, removalists, teaching/lessons, martial arts, pet care, and many more.
Airtasker is currently seeing a solid profit increase, while also investing for long-term growth.
The company has already developed its platform, so extra revenue in Australia can be a real boost for long-term profitability. In the FY24 first-half result, it reported a gross profit margin of around 95%, which is very large. It means almost all of the company's new revenue turns into usable gross profit.
In the FY24 third quarter, the ASX small-cap share reported positive free cash flow of $2.5 million, an improvement of $5.1 million year over year. The Airtasker marketplace revenue increased 11.5% year over year to $10.1 million. I think new revenue will significantly help Airtasker's financials.
Excitingly, the company is employing the same strategies in the United Kingdom as it did in Australia to achieve success. In the FY24 third quarter, UK-posted tasks grew 49.1%. The UK market is much bigger than Australia, so this ASX small-cap share has a lot of potential there.
Adore Beauty Group Ltd (ASX: ABY)
Adore Beauty is an online retailer of beauty and health products. The business offers a portfolio of more than 270 brands and over 13,000 products through its platform. The company says it has evolved into an integrated content, marketing and e-commerce retail platform.
The business has done well growing its app use. Marketing to customers, offering app-only promotions, and content integration have benefits. The app and podcasts can lower the costs of reaching customers and encourage them to increase order values and frequency.
Adore Beauty is also working to grow its own brands – AB Lab, Adore Beauty and Viviology – which gives the company a way to grow sales and capture more value in a sale on its platform.
In its recent FY24 third-quarter update, the ASX small-cap share showed that some of its main metrics were improving.
Revenue rose by 8.9% to $45 million, the number of returning customers increased 6.4% to 514,000, active customers grew 2.4% to 811,000, and the mobile app accounted for 28% of total revenue (up from 23% in the prior corresponding period).
If revenue keeps growing over time, then I think this company can steadily grow too.
