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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 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should monday.com (NASDAQ:MNDY) shareholders be worried about its 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
See our latest analysis for monday.com
When Might monday.com 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. As at March 2022, monday.com had cash of US$850m and no debt. Importantly, its cash burn was US$8.3m over the trailing twelve months. So it had a very long cash runway of many years from March 2022. Importantly, though, analysts think that monday.com will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.
How Well Is monday.com Growing?
monday.com managed to reduce its cash burn by 80% over the last twelve months, which suggests it's on the right flight path. This reduction was no doubt supported by its strong revenue growth of 90% in the same period. Overall, we'd say its growth is rather impressive. 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 monday.com To Raise More Cash For Growth?
We are certainly impressed with the progress monday.com 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and 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).
Since it has a market capitalisation of US$4.7b, monday.com's US$8.3m in cash burn equates to about 0.2% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.