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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, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.
So should PointsBet Holdings (ASX:PBH) shareholders be worried about its 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.
See our latest analysis for PointsBet Holdings
Does PointsBet Holdings Have A Long Cash Runway?
You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In December 2021, PointsBet Holdings had AU$569m in cash, and was debt-free. In the last year, its cash burn was AU$211m. So it had a cash runway of about 2.7 years from December 2021. Notably, analysts forecast that PointsBet Holdings will break even (at a free cash flow level) in about 4 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. The image below shows how its cash balance has been changing over the last few years.
How Well Is PointsBet Holdings Growing?
Notably, PointsBet Holdings actually ramped up its cash burn very hard and fast in the last year, by 140%, signifying heavy investment in the business. It seems likely that the vociferous operating revenue growth of 110% during that time may well have given management confidence to ramp investment. On balance, we'd say the company is improving over time. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Hard Would It Be For PointsBet Holdings To Raise More Cash For Growth?
Even though it seems like PointsBet Holdings is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.