Is Taboola.com (NASDAQ:TBLA) Using Debt In A Risky Way?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Taboola.com Ltd. (NASDAQ:TBLA) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Taboola.com

What Is Taboola.com's Debt?

As you can see below, Taboola.com had US$146.1m of debt at September 2024, down from US$194.8m a year prior. But it also has US$217.2m in cash to offset that, meaning it has US$71.2m net cash.

How Healthy Is Taboola.com's Balance Sheet?

The latest balance sheet data shows that Taboola.com had liabilities of US$442.2m due within a year, and liabilities of US$208.9m falling due after that. Offsetting this, it had US$217.2m in cash and US$297.3m in receivables that were due within 12 months. So its liabilities total US$136.5m more than the combination of its cash and short-term receivables.

Since publicly traded Taboola.com shares are worth a total of US$1.25b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Taboola.com also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Taboola.com 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.

In the last year Taboola.com wasn't profitable at an EBIT level, but managed to grow its revenue by 22%, to US$1.7b. With any luck the company will be able to grow its way to profitability.

So How Risky Is Taboola.com?

Although Taboola.com had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$108m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. One positive is that Taboola.com is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. For riskier companies like Taboola.com I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.