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There's no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.
Given this risk, we thought we'd take a look at whether Nextdoor Holdings (NYSE:KIND) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
When Might Nextdoor Holdings Run Out Of Money?
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. As at December 2024, Nextdoor Holdings had cash of US$427m and no debt. Looking at the last year, the company burnt through US$21m. That means it had a cash runway of very many years as of December 2024. Notably, however, analysts think that Nextdoor Holdings will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.
See our latest analysis for Nextdoor Holdings
How Well Is Nextdoor Holdings Growing?
Happily, Nextdoor Holdings is travelling in the right direction when it comes to its cash burn, which is down 65% over the last year. And while hardly exciting, it was still good to see revenue growth of 13% during that time. It seems to be growing nicely. 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.
Can Nextdoor Holdings Raise More Cash Easily?
We are certainly impressed with the progress Nextdoor Holdings has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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).