Is Outbrain (NASDAQ:OB) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Outbrain Inc. (NASDAQ:OB) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Outbrain

What Is Outbrain's Debt?

The image below, which you can click on for greater detail, shows that Outbrain had debt of US$118.0m at the end of December 2023, a reduction from US$236.0m over a year. But it also has US$165.2m in cash to offset that, meaning it has US$47.2m net cash.

How Strong Is Outbrain's Balance Sheet?

The latest balance sheet data shows that Outbrain had liabilities of US$297.6m due within a year, and liabilities of US$144.0m falling due after that. Offsetting these obligations, it had cash of US$165.2m as well as receivables valued at US$189.3m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$87.0m.

Outbrain has a market capitalization of US$189.4m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Outbrain boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Outbrain can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Outbrain made a loss at the EBIT level, and saw its revenue drop to US$936m, which is a fall of 5.7%. That's not what we would hope to see.

So How Risky Is Outbrain?

While Outbrain lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$10m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Outbrain you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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