Yahoo Finance We're Not Worried About Delivery Hero's (ETR:DHER) Cash Burn
We can readily understand why investors are attracted to unprofitable companies. For example, Delivery Hero (ETR:DHER) shareholders have done very well over the last year, with the share price soaring by 100%. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
Given its strong share price performance, we think it's worthwhile for Delivery Hero shareholders to consider whether its cash burn is concerning. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
View our latest analysis for Delivery Hero
Does Delivery Hero Have A Long Cash Runway?
A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. Delivery Hero has such a small amount of debt that we'll set it aside, and focus on the €813m in cash it held at June 2019. Looking at the last year, the company burnt through €302m. Therefore, from June 2019 it had 2.7 years of cash runway. Notably, however, analysts think that Delivery Hero 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. The image below shows how its cash balance has been changing over the last few years.
How Well Is Delivery Hero Growing?
Some investors might find it troubling that Delivery Hero is actually increasing its cash burn, which is up 40% in the last year. Having said that, it's revenue is up a very solid 76% in the last year, so there's plenty of reason to believe in the growth story. Of course, with spend going up shareholders will want to see fast growth continue. We think it is growing rather well, upon reflection. 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.
How Easily Can Delivery Hero Raise Cash?
We are certainly impressed with the progress Delivery Hero 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 to 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).
Delivery Hero's cash burn of €302m is about 2.4% of its €12b market capitalisation. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.
Is Delivery Hero's Cash Burn A Worry?
As you can probably tell by now, we're not too worried about Delivery Hero's cash burn. For example, we think its revenue growth suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. One real positive is that analysts are forecasting that the company will reach breakeven. 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. While we always like to monitor cash burn for early stage companies, qualitative factors such as the CEO pay can also shed light on the situation. Click here to see free what the Delivery Hero CEO is paid..
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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