Is ThredUp (NASDAQ:TDUP) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that ThredUp Inc. (NASDAQ:TDUP) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. 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.

What Is ThredUp's Debt?

As you can see below, ThredUp had US$22.0m of debt at December 2024, down from US$25.8m a year prior. But on the other hand it also has US$44.2m in cash, leading to a US$22.2m net cash position.

How Healthy Is ThredUp's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ThredUp had liabilities of US$61.5m due within 12 months and liabilities of US$53.4m due beyond that. On the other hand, it had cash of US$44.2m and US$3.57m worth of receivables due within a year. So it has liabilities totalling US$67.2m more than its cash and near-term receivables, combined.

This deficit isn't so bad because ThredUp is worth US$300.9m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, ThredUp 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 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

Over 12 months, ThredUp saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that's not too bad, we'd prefer see growth.

So How Risky Is ThredUp?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months ThredUp lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$5.7m and booked a US$40m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of US$22.2m. That means it could keep spending at its current rate for more than two years. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for ThredUp (of which 1 makes us a bit uncomfortable!) you should know about.

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.