We're A Little Worried About BlueBet Holdings' (ASX:BBT) Cash Burn Rate

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. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should BlueBet Holdings (ASX:BBT) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for BlueBet Holdings

Does BlueBet Holdings Have A Long Cash Runway?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. BlueBet Holdings has such a small amount of debt that we'll set it aside, and focus on the AU$23m in cash it held at June 2023. In the last year, its cash burn was AU$24m. Therefore, from June 2023 it had roughly 11 months of cash runway. Importantly, analysts think that BlueBet Holdings will reach cashflow breakeven in 3 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.

How Well Is BlueBet Holdings Growing?

It was quite stunning to see that BlueBet Holdings increased its cash burn by 214% over the last year. On top of that, the fact that operating revenue was basically flat over the same period compounds the concern. Considering these two factors together makes us nervous about the direction the company seems to be heading. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Hard Would It Be For BlueBet Holdings To Raise More Cash For Growth?

Since BlueBet Holdings can't yet boast improving growth metrics, the market will likely be considering how it can raise more cash if need be. 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).

BlueBet Holdings' cash burn of AU$24m is about 60% of its AU$40m market capitalisation. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.

Is BlueBet Holdings' Cash Burn A Worry?

We must admit that we don't think BlueBet Holdings is in a very strong position, when it comes to its cash burn. Although we can understand if some shareholders find its falling revenue acceptable, we can't ignore the fact that we consider its increasing cash burn to be downright troublesome. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After looking at that range of measures, we think shareholders should be extremely attentive to how the company is using its cash, as the cash burn makes us uncomfortable. An in-depth examination of risks revealed 3 warning signs for BlueBet Holdings that readers should think about before committing capital to this stock.

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)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.