ASX small cap tech stocks powering into profitability start to feel investor love

Several ASX small-cap tech companies are showing they’re on a pathway to profitability
Bluebet Holdings soars ~50% on back of positive Q4 FY23 results, including cash flow positivity
Jayride passes 1 million passenger trip run rate milestone in July as it aims for positive cash flow in FY24

Red Leaf Securities CEO John Athanasiou says the time has come for small-cap tech companies that are profitable or powering towards profitability to shine and be rewarded by the market.

“Finally, the small-cap tech companies which are producing profitability or show a clear path to profitability are getting rewarded,” he says.

He says 2023 has seen a rebound in tech stocks both globally and on the ASX, after a lucklustre 2022 performance where the sector fell heavily on the back of rising inflation and interest rates.

Global enthusiasm for the emerging field of artificial intelligence (AI) is leading the uptick in tech among the big names on the Nasdaq, but it is flowing through to the sector generally on a worldwide scale.

“There’s been an extraordinary upside in large-cap tech stocks – for example WiseTech Global (ASX:WTC) is trading near its all-time highs, or you just have to look at the Nasdaq,” he says.

The S&P/ASX 200 Info Tech [XIJ] index was up by more than 7% in July, and 40% for the year. Meanehile the Nasdaq – the bellwether for the global tech sector, has rallied by more than 37% in 2023 and had its best first half since 1983.

“Investors are starting to look at the small-cap tech sector because they believe there are better opportunities there now,” Athanasiou says.

“If you’re a tech company that can show a clear path to profitability or show some form of commercialisation then you are going to finally get rewarded where previously you were being disregarded, and that’s the biggest change I’ve seen in the tech sector.”

Here are some small-cap ASX tech stocks we’ve noticed that are profitable or approaching profitability.

Bluebet Holdings (ASX:BBT)

Athanasiou says the sports-betting operator is a good example of a tech company being rewarded for profitability and has risen ~50% since releasing its Q4 FY23 results, including remaining cash flow positive (including corporate costs).

The company also reported a record quarterly net win of $14.9 million driven by a strong 11.% margin and continued market-share growth in Australia, with active customers up 22.7% to 65,415 and bet count up 6.3% to 3 million.

BBT had strong performance in Australian sport with turnover up 25.5%.

CEO Bill Richmond says Q4 was a very strong quarter for BBT’s Australian business, with record net win, strong margins and market share growth in our Sportsbook, where “the BlueBet brand keeps punching above its weight”.

“The Australian business remained operating cash flow positive, benefiting from our strong trading performance and disciplined marketing strategy, which continues to deliver efficient customer acquisition,” he says.

Netlinkz (ASX:NET)

A spokesman for the global network solutions vendor says it is eyeing profitability and recently inked several strategic partnerships, including with Spark, the former Telecom NZ; PT &T, a Manila based telco; and HGC Global Communications based in Hong Kong.

As a “carrier-of-carriers”, HGC is currently putting the software through its paces with a view to offering organisations secure, individualised networks.

The spokesman says this is a modified version of software used by corporations in and outside China, including a US company which uses it to coordinate production across its 41-country supply network.

As HGC can boast an existing 1.4 million kms optic fibre radiating out from Hong Kong, it can provide the backbone for Asian companies connecting with the world.

“We expect this to work well for all parties,” the spokesman says.

“Smaller telcos will be able to offer clients secure networking across cloud, mobile and connected infrastructure like security cameras, power, water and wind.

“For us the partnership with HGC provides leverage on leverage.”

In November 2022, NET negotiated a deal to become a global non-exclusive reseller of the Starlink satellite-based broadband internet.

“Starlink offers another form of global leverage across shipping, oil and gas, mining, banking, health, education and so on,” the spokesman says.

“The targets range from the Pilbara to Peru.

“Even though Starlink-delivered internet is easy to deploy and as fast and seamless as optic fibre, it can’t solve the inherent vulnerability of the internet unless all an organisation’s end-points are secure.”

Jayride (ASX:JAY)

The airport transfers marketplace announced it had passed its 1 million passenger trip run rate milestone in July, an important driver in achieving its aim of becoming cash flow positive for FY24.

A return to travel from the Covid-19 pandemic years, the Northern Hemisphere summer surge in demand and an ongoing structural shift for travellers to book their rides online and avoid a taxi rank has helped boost customers on JAY’s platform.

MD Rod Bishop said JAY is delivering on its anticipated Q4-Q1 Northern Hemisphere summer peak season.

“With this momentum we have passed the next milestone in our strategy to become a much larger and cash flow positive company,” he says.

“July is the first month we have ever exceeded an annualised run rate of 1 million+ passenger trips booked.

“This scale is an important driver in achieving our objective of becoming cash flow positive for FY24.”

Bishop says JAY is moving forward on delivering its other key objective of rebuilding net revenue to pre-pandemic levels of $10 per trip.

“We look forward to continuing our growth to create a larger, cash-flow-positive Jayride,” he says.

SiteMinder (ASX:SDR)

The hotel bookings platform SDR recently announced it is on the path to profitability, after reporting a solid year, which included accelerating its subscriber growth and reducing cash usage.

SDR expects to be EBITDA profitable and free cash flow positive in the second half of FY24.

For the year, the platform’s annualised recurring revenue (ARR) was up 33.5% on pcp to $173.1 million, while liquidity remains strong at $83.6 million in cash and equivalents.

“The past year has seen SiteMinder strengthen its go-to-market capability through the expansion of marketing and sales channels that reach hotels in more effective and targeted ways,” says CEO Sankar Narayan.

“This growth, along with our cost-reduction program, has put the business firmly on the path to become profitable in H2FY24.”

Wisr (ASX:WZR)

The non-bank lender recently reported that moderated growth and opex reduction had delivered positive EBTDA for the June quarter.

Among highlights for Q4 FY23, WZR reported operating cash flow of $2.6 million and EBTDA of $900k, both excluding $800k one-off restructuring costs, along with an opex decrease of 21% on Q3 FY23.

The company’s quarterly revenue was $24.6 million, a 39% increase on Q4 FY22.

WZR says loan originations of $53 million followed deliberate moderation of loan origination volume to maintain a strong balance sheet and prioritise profitability. The company has recorded $1.6 billion in total loan originations to date.

The company reported a loan book of $931 million, an increase of 19% on Q4 FY22, with 90+ day arrears of 1.25% and average credit score of 767.

CFO Andrew Goodwin says at the beginning of Q4 WZR made the prudent decision to further reduce operating costs while continuing to focus on profitability.

“This included deliberate moderation of loan origination volume along with additional headcount reductions,” he says.

“These temporary settings are considered appropriate to maintain a strong balance sheet amidst the backdrop of continued monetary tightening and broader economic uncertainty.”

He says the business has continued to focus on net interest margin (NIM) expansion through lifting front book yield in response to the higher cash rate.

“Combined with a clear capital management strategy, Wisr is in a strong position to safeguard against the current
macroeconomic climate and deliver a profitable company,” he says.

“When the conditions are deemed appropriate, the business has measures in place to pivot quickly and recommence scaling.”

Pointerra (ASX:3DP)

The 3D geospatial data company offers a cloud-oriented solution for the storage, manipulation, administration, examination, extraction, portrayal, and distribution of 3D data.

The company recently announced an existing customer Entergy, a Fortune 500 company, has selected 3DP’s US EPC partners for its 10-year, US$15 billion grid resilience CAPEX program.

Entergy provides power to 3 million customers throughout Arkansas, Louisiana, Mississippi and Texas. In late 2022, the Louisiana based energy utility had announced a 10-year, US$15 billion electric grid resilience CAPEX program.

3DP’s AI-driven analytics platform will be used to identify and prioritise grid assets requiring remediation or replacement across the term of the program.

While in its latest quarterly report 3DP reported FY23 cash receipts totalling $9.4 million, up from $7.8 million in FY22. The company was $1.79 million cash flow negative in the June quarter, but says it’s collected $1.8 million cash in July and expects to “revert cash flow positive in Q1 Fy24 and beyond”.

“If you are not profitable you need to show a pathway to it, just like 3DP did in their recent deal,” Athanasiou says.

The 3DP share price is up 55% in the past month.