We're Not Worried About Rush Street Interactive's (NYSE:RSI) Cash Burn

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Rush Street Interactive (NYSE:RSI) 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

Check out our latest analysis for Rush Street Interactive

When Might Rush Street Interactive Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Rush Street Interactive last reported its balance sheet in September 2023, it had zero debt and cash worth US$171m. Looking at the last year, the company burnt through US$49m. Therefore, from September 2023 it had 3.5 years of cash runway. Notably, however, analysts think that Rush Street Interactive will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Rush Street Interactive Growing?

Rush Street Interactive managed to reduce its cash burn by 62% over the last twelve months, which suggests it's on the right flight path. And while hardly exciting, it was still good to see revenue growth of 19% during that time. 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 Rush Street Interactive To Raise More Cash For Growth?

We are certainly impressed with the progress Rush Street Interactive 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. Many companies end up issuing new shares to fund future 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).

Rush Street Interactive has a market capitalisation of US$940m and burnt through US$49m last year, which is 5.2% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

How Risky Is Rush Street Interactive's Cash Burn Situation?

It may already be apparent to you that we're relatively comfortable with the way Rush Street Interactive is burning through its cash. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. Its revenue growth wasn't quite as good, but was still rather encouraging! It's clearly very positive to see that analysts are forecasting the company will break even fairly soon. Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 2 warning signs for Rush Street Interactive that investors should know when investing in the stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

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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.