We can readily understand why investors are attracted to unprofitable companies. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So should Remitly Global (NASDAQ:RELY) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.
When Might Remitly Global Run Out Of Money?
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 2022, Remitly Global had US$430m in cash, and was debt-free. Looking at the last year, the company burnt through US$58m. So it had a cash runway of about 7.4 years from June 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.
How Well Is Remitly Global Growing?
One thing for shareholders to keep front in mind is that Remitly Global increased its cash burn by 448% in the last twelve months. While that isa little concerning at a glance, the company has a track record of recent growth, evidenced by the impressive 55% growth in revenue, over the very same year. Considering both these factors, we're not particularly excited by its growth profile. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.
How Easily Can Remitly Global Raise Cash?
We are certainly impressed with the progress Remitly Global 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. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive 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).
Remitly Global has a market capitalisation of US$1.8b and burnt through US$58m last year, which is 3.3% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.
Is Remitly Global's Cash Burn A Worry?
As you can probably tell by now, we're not too worried about Remitly Global's cash burn. For example, we think its revenue growth suggests that the company is on a good path. Although we do find its increasing cash burn to be a bit of a negative, once we consider the other metrics mentioned in this article together, the overall picture is one we are comfortable with. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Remitly Global (of which 1 shouldn't be ignored!) you should know about.
Of course Remitly Global may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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