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. 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 Inspirato (NASDAQ:ISPO) 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. Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for Inspirato
When Might Inspirato Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. In March 2023, Inspirato had US$60m in cash, and was debt-free. Importantly, its cash burn was US$67m over the trailing twelve months. Therefore, from March 2023 it had roughly 11 months of cash runway. Importantly, analysts think that Inspirato will reach cashflow breakeven in 2 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. The image below shows how its cash balance has been changing over the last few years.
Is Inspirato's Revenue Growing?
We're hesitant to extrapolate on the recent trend to assess its cash burn, because Inspirato actually had positive free cash flow last year, so operating revenue growth is probably our best bet to measure, right now. We think that it's fairly positive to see that revenue grew 33% in the last twelve months. 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 Hard Would It Be For Inspirato To Raise More Cash For Growth?
While Inspirato is showing solid revenue growth, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. 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.