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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 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Blackbird (LON:BIRD) shareholders 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.
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How Long Is Blackbird's 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 2024, Blackbird had UK£5.6m in cash, and was debt-free. Looking at the last year, the company burnt through UK£3.9m. Therefore, from June 2024 it had roughly 18 months of cash runway. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. Depicted below, you can see how its cash holdings have changed over time.
How Well Is Blackbird Growing?
At first glance it's a bit worrying to see that Blackbird actually boosted its cash burn by 10%, year on year. Also concerning, operating revenue was actually down by 28% in that time. Taken together, we think these growth metrics are a little worrying. Of course, we've only taken a quick look at the stock's growth metrics, here. This graph of historic earnings and revenue shows how Blackbird is building its business over time.
How Easily Can Blackbird Raise Cash?
Even though it seems like Blackbird is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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.
Blackbird's cash burn of UK£3.9m is about 18% of its UK£21m market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.