Why I'm bullish about this exciting ASX small-cap share

The foundations are compelling with this stock.

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The ASX small-cap share section of the market is full of stocks with the potential to deliver good returns. An ASX tech small cap with a compelling future is particularly exciting because it can deliver higher profit margins.

One such company is Airtasker Ltd (ASX: ART). It claims to be Australia's leading online marketplace for local services, connecting people and businesses that need work done with people who want to work.

Airtasker shares have been trending higher in the last couple of weeks, as shown in the chart above. I believe there is plenty more to come over the long term.

High gross profit margin

Airtasker has an enormous gross profit margin of more than 90%, which means that almost all of its revenue turns into usable gross profit. With gross profit, the business can spend on growth activities such as advertising and development while also potentially achieving stronger cash flow and better earnings before interest, tax, depreciation and amortisation (EBITDA) margin.

The business is now achieving profit rather than losses, which is an important milestone.

In the third quarter, Airtasker achieved a positive free cash flow of $2.5 million, an improvement of $5.1 million year over year. The group EBITDA was $0.6 million in the third quarter, up $1.5 million compared to the prior corresponding period.

Thanks to growing scale benefits, I think the cash flow margin and EBITDA margin can significantly increase in the coming years.

Strong revenue growth

With good margins, the ASX small-cap share just needs to grow its revenue to deliver good financial progress.

The business revealed its group revenue was $12.2 million in the third quarter of FY24, with Airtasker marketplace revenue growing by 11.5% to $10.1 million.

The company said the revenue growth was driven by a "recovery in consumer demand (posted tasks) from the prior year as well as successful funnel optimisation programs, including a revised cancellation policy designed to improve platform reliability and address task leakage."

Those programs saw cancellations reduce by 23.9% year over year, resulting in the 'monetisation rate' improving by 12.8% year over year to 20.5% for the ASX small-cap share.

Airtasker recently made agreements with media businesses oOh!Media Ltd (ASX: OML) and ARN Media Ltd (ASX: A1N) for $11 million to grow its brand awareness.

Large addressable market

Users can advertise almost any task on Airtasker, including removalists, home cleaning, furniture assembly, deliveries, gardening and landscaping, painting and other handyperson work, business and admin, photography, and many more. There are many categories with a high annual value of work.

Airtasker is growing rapidly in the United Kingdom — a much bigger market than Australia — partly thanks to its partnership with Channel 4. In the FY24 third quarter, UK posted tasks increased by 49.1% year over year.

It has a smaller presence in the United States, but it's growing there too. FY24 US gross marketplace value (GMV) went up 23% from a small base. It's seeing "healthy growth" in marketplace activity while "maintaining a disciplined approach to investment" as it explores "several media partnership opportunities."

I think the international growth could power this ASX small-cap share much higher.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Airtasker. The Motley Fool Australia has no position in any of the stocks mentioned. 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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