Is Genius Sports (NYSE:GENI) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Genius Sports Limited (NYSE:GENI) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Genius Sports

What Is Genius Sports's Net Debt?

The image below, which you can click on for greater detail, shows that Genius Sports had debt of US$7.59m at the end of December 2023, a reduction from US$14.5m over a year. But it also has US$100.3m in cash to offset that, meaning it has US$92.7m net cash.

A Look At Genius Sports' Liabilities

We can see from the most recent balance sheet that Genius Sports had liabilities of US$182.9m falling due within a year, and liabilities of US$19.8m due beyond that. Offsetting these obligations, it had cash of US$100.3m as well as receivables valued at US$109.9m due within 12 months. So it actually has US$7.52m more liquid assets than total liabilities.

Having regard to Genius Sports' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.22b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Genius Sports has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Genius Sports's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Genius Sports wasn't profitable at an EBIT level, but managed to grow its revenue by 21%, to US$413m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Genius Sports?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Genius Sports lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$34m and booked a US$86m accounting loss. But the saving grace is the US$92.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. With very solid revenue growth in the last year, Genius Sports may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. For riskier companies like Genius Sports I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.