Airtasker Ltd (ASX: ART) shares could be a leading contender for strong returns over the long term. Could it be a 100-bagger?
A 100-bagger is an investment that turns $1 into $100, or $10,000 into $1 million.
Of course, that sort of return doesn't happen overnight. Even for names like Apple and Amazon, it took many years to become the behemoths they are today. I'm not expecting Airtasker to become as big as those two US giants.
For a business to go up 100 times in value, it probably needs to start from a small base. It's much easier for a $100 million company to double in size than a $1 trillion dollar business to double. Apple is a US$2 trillion business now, so even doubling from here would be a gigantic increase in dollar terms.
Airtasker is a much, much smaller business, with a market capitalisation of $150 million according to the ASX.
I think it's worth saying that as the years go by, its profit could grow faster than revenue in percentage terms, because of how profit margins can rise as a business gets bigger.
I'll soon explain why I think Airtasker's profit can soar in the future. But, the fact that it's starting from a cheaper Airtasker share price gives a helping hand to go up from here. It's down around 60% in 2022 to date and it's down 77% since 26 March 2021. I am expecting some volatility over the years.
For readers that haven't heard of the ASX share, it runs a platform where people ask for help to do a task, and taskers can offer to do the work. There is an extremely wide array of task categories including furniture assembly, admin, cleaning, catering, delivery, gardening, removalists, pet care, photography, a wide array of tradesperson tasks and so on.
3 reasons why the Airtasker share price and profit could soar
Strong growth
One of the absolute key factors for whether Airtasker will be able to become worth billions is its ability to keep growing revenue.
It's already generating excellent growth, in percentage terms. I think the FY23 first quarter showed very strong organic growth. Excluding the Oneflare marketplace contribution, Airtasker's revenue grew by 36% year over year to $8 million. Including Oneflare, the revenue grew 80% to $10.5 million.
In the UK, where the ASX share is balancing growth of demand for tasks and supply of tasker offers, it saw gross marketplace volume (GMV) rise by 68% in the first quarter on an annualised basis. But, UK revenue soared 133.6% thanks to the introduction of a booking fee which improved unit economics.
The US saw the number of posted tasks in the US increase by 4.7 times year over year to 13,000.
Very large addressable market
Airtasker is investing across its business to grow.
In Australia, it's looking to leverage its network effects to produce strong margins and positive cash flows. It's investing to grow its core product to drive returning users and unlock new customer interactions (eg rebooking).
The ASX share has big hopes for both the UK and US. Remember, the Australian population is around 26 million, the UK population is more than 67 million and the US population is 334 million. The combined US and UK population is significantly larger than Australia's.
Airtasker probably won't just stop at these three countries. Places like Canada, New Zealand, and so on could make sense. Non-English-speaking countries could also be attractive places to expand, even if it means making the occasional acquisition.
With how many different services Airtasker is involved with, there are many more potential service improvements that Airtasker could offer taskers, like how Xero Limited (ASX: XRO) and REA Group Limited (ASX: REA) have increased prices but have also made their services even more useful for subscribers/users.
Very high profit margin
Airtasker has an incredibly high gross profit margin. It was 94% in the first quarter of FY23, with variable input costs being "largely untethered" to inflation.
This means that if Airtasker generates an extra $100 of revenue, $94 of it would turn into gross profit, which can then be spent on growth activities like marketing or software development.
When Airtasker doesn't need to spend so much to achieve growth, its profit margins can improve substantially because of that incredibly high gross profit margin of 94%.
The Australian marketplace is already generating positive earnings before interest, tax, depreciation and amortisation (EBITDA) for the ASX share. Airtasker could grow a lot more in Australia, very profitably, allowing it to reinvest heavily for growth overseas and this could help drive long-term shareholder value and the Airtasker share price.
