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3 small-cap ASX tech shares to watch

The ASX tech sector is crowded by big names such as Afterpay Touch Group Ltd (ASX: APT), WiseTech Global Ltd (ASX: WTC) and Appen Ltd (ASX: APX). But here are three small-cap ASX tech shares that deserve a place on your watchlist. 

1. Rhipe Ltd (ASX: RHP)

Rhipe has a market capitalisation of approximately $370 million and provides wholesale software licenses to IT service providers in the Asia Pacific region. Most of the software subscriptions are for products from well-known and leading software vendors such as Microsoft, VMware and Citrix. Rhipe exists in this wholesale ecosystem as it provides value added services such as marketing, consulting and support services. While the company does trade at a premium price-to-earnings ratio of approximately 50, it has delivered some strong growth figures to justify its valuation. 

In FY19, the company saw its revenue increase 36% to $48.4 million while operating profit soared by 65% to $12.8 million. More importantly, the company has provided an estimate that operating profit for FY20 to be approximately $16 million, excluding any changes in market conditions or major expansion initiatives such as geographical or vendor expansion opportunities. It is important to note that in the coming months, Rhipe will be working with Microsoft Japan and Japan Business Systems Inc. (JBS) to quantify the timing and investment required for Rhipe Japan. An updating regarding the geographic expansion will be provided in its annual general meeting in November 2019. 

2. Atomos Ltd (ASX: AMS) 

Atomos is a global video technology company that enhances video content creation. Its products connect the imaging and computer worlds together, allowing users to enhance content creation, quality and creativity. The company has a market capitalisation of almost $250 million and is in its early days developing product awareness and new product development. 

The company exceeded its financial goals in FY19. It reported a 51% increase in revenue to $54.0m, exceeding FY19 Prospectus revenue forecast by 28%. Its EBITDA was up $1.4 million year-on-year to $1.6 million, exceeding forecasts by $1.3 million. One of the key risks for Atomos is its $5.1 million cash position. The company needs to exhibit disciplined cash management while investing in its R&D and marketing efforts. 

3. Class Limited (ASX: CL1) 

Class is the provider of cloud-based administration software solutions tailored to the requirements of SMSF administrators in Australia. Its software allows accountants, administrators and advisors to increase profitability, fuel business growth and deliver better customer service. 

The company has delivered stable earnings in FY19 with operating revenue increasing by 13% and NPAT increasing by 3%. Class has claimed that despite having the best product, it must extend product differentiation and improve marketing to increase sales.

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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