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2 hot small caps disrupting multi-billion pound industries

We’ve all heard that robots are coming for our jobs, but until now most of these jobs losses have been blue-collar positions in factories and the like. However, fresh AIM entrant Blue Prism (LSE: PRSM) is looking to replace white-collar workers with its software, which automates back-office drudge work such as data input and number crunching.

Incredibly appealing…

Anyone who’s familiar with the astronomical back-office operating costs that banks and other huge multinationals constantly complain about will understand why Blue Prism’s services are incredibly appealing. Indeed, full year results released last week showed contracted revenue more than tripling from £11.5m to £35.2m year-on-year, as droves of new customers signed up for the company’s services.

While this contracted revenue has yet to find its way into the company’s coffers, a deep backlog such as this is still very reassuring for prospective investors. Even more reassuring is that a full 85% of the company’s revenue is recurring, and that it’s having great success in renewing old contracts and upselling current customers.

… but a frightening prospect

Now, the downside is that the company is spending heavily on rolling out its services and has yet to turn a profit. In the past year the company ran up an operating loss of £5.2m while revenue was a meagre £9.6m. This isn’t a problem yet, as it has £11.8m in cash and access to a £2m revolving credit facility, but the company will need to turn cash flow positive sooner rather than later.

Investing in AIM companies is always fraught with risk, especially when they’re young, still loss-making and promising incredibly grand futures. While I like that insiders own more than 25% of outstanding shares the fact that Blue Prism is attracting competitors and isn’t expected to turn a profit for at least another two years is a frightening prospect. I’ll be following the company’s progress closely but won’t be buying shares at this point.

Don’t like high street estate agents? You’re not alone

A more well known disruptor is hybrid online estate agent Purplebricks (LSE: PURP). This founder-led business is becoming more and more popular as its low, fixed-cost approach to selling homes for an average of £1,200 is proving far more enticing for home sellers than giving estate agents 1%-2.5% of the final sale price.

Just how popular? Well, in the six months to October Purplebricks reported that it had sold and completed some £2.5bn worth of transactions, nearly as much as the £2.7bn it booked in the entire fiscal year 2016. Increased sales are feeding through to the bottom line and UK operations posted their maiden profit in H1 with £0.3m in EBITDA.

An exciting option

While the company overall was still loss making as it expanded into Australia, this is still a huge turning point for the young business. And, the overall £2.5m adjusted EBITDA loss for the period is more than sustainable as net cash at period end was a whopping £29.1m.

Of course, the fate of Purplebricks is closely tied to the health of the domestic economy and housing market. But the good news is that with only £18.3m in UK revenue in H1 there’s plenty of room for Purplebricks to continue taking market share in the multi-billion pound UK housing industry. A founder-led management team and now proven ability to turn a profit makes Purplebricks an exciting option in my eyes for the more risk-hungry investors out there.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.