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We can readily understand why investors are attracted to unprofitable companies. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for ON24 (NYSE:ONTF) shareholders is whether they should be concerned by its rate of cash burn. 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
See our latest analysis for ON24
When Might ON24 Run Out Of Money?
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. In June 2024, ON24 had US$194m in cash, and was debt-free. In the last year, its cash burn was US$3.2m. That means it had a cash runway of very many years as of June 2024. Importantly, though, analysts think that ON24 will reach cashflow breakeven 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 ON24 Growing?
Given our focus on ON24's cash burn, we're delighted to see that it reduced its cash burn by a nifty 86%. Unfortunately, however, operating revenue dropped 14% during the same time frame. 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.
How Hard Would It Be For ON24 To Raise More Cash For Growth?
We are certainly impressed with the progress ON24 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. 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.
ON24's cash burn of US$3.2m is about 1.2% of its US$264m market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.