Is ThredUp (NASDAQ:TDUP) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that ThredUp Inc. (NASDAQ:TDUP) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is ThredUp's Net Debt?

As you can see below, ThredUp had US$21.0m of debt at March 2025, down from US$24.9m a year prior. However, it does have US$46.8m in cash offsetting this, leading to net cash of US$25.7m.

How Healthy Is ThredUp's Balance Sheet?

According to the last reported balance sheet, ThredUp had liabilities of US$65.6m due within 12 months, and liabilities of US$50.8m due beyond 12 months. On the other hand, it had cash of US$46.8m and US$4.23m worth of receivables due within a year. So its liabilities total US$65.4m more than the combination of its cash and short-term receivables.

Of course, ThredUp has a market capitalization of US$909.3m, so these liabilities are probably manageable. 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, ThredUp also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if ThredUp can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for ThredUp

In the last year ThredUp wasn't profitable at an EBIT level, but managed to grow its revenue by 8.0%, to US$267m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is ThredUp?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that ThredUp had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$2.0m of cash and made a loss of US$33m. While this does make the company a bit risky, it's important to remember it has net cash of US$25.7m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with ThredUp .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.