Even when a business is losing money, it’s possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So, the natural question for Airtasker (ASX:ART) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. First, we’ll determine its cash runway by comparing its cash burn with its cash reserves.
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Does Airtasker Have A Long Cash Runway?
A company’s cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In June 2023, Airtasker had AU$17m in cash, and was debt-free. Importantly, its cash burn was AU$14m over the trailing twelve months. That means it had a cash runway of around 14 months as of June 2023. Importantly, though, analysts think that Airtasker will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.
How Well Is Airtasker Growing?
We reckon the fact that Airtasker managed to shrink its cash burn by 22% over the last year is rather encouraging. On top of that, operating revenue was up 40%, making for a heartening combination It seems to be growing nicely. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
Can Airtasker Raise More Cash Easily?
Airtasker seems to be in a fairly good position, in terms of cash burn, but we still think it’s worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By comparing a company’s annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).
Airtasker’s cash burn of AU$14m is about 13% of its AU$113m market capitalisation. Given that situation, it’s fair to say the company wouldn’t have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
So, Should We Worry About Airtasker’s Cash Burn?
As you can probably tell by now, we’re not too worried about Airtasker’s cash burn. In particular, we think its revenue growth stands out as evidence that the company is well on top of its spending. Its weak point is its cash runway, but even that wasn’t too bad! There’s no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we’re pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we’ve identified 1 warning sign for Airtasker that you should be aware of before investing.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.