Is Backblaze (NASDAQ:BLZE) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 note that Backblaze, Inc. (NASDAQ:BLZE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Backblaze

What Is Backblaze's Debt?

You can click the graphic below for the historical numbers, but it shows that Backblaze had US$5.28m of debt in March 2024, down from US$8.34m, one year before. But on the other hand it also has US$28.2m in cash, leading to a US$22.9m net cash position.

A Look At Backblaze's Liabilities

According to the last reported balance sheet, Backblaze had liabilities of US$55.7m due within 12 months, and liabilities of US$28.8m due beyond 12 months. Offsetting these obligations, it had cash of US$28.2m as well as receivables valued at US$5.32m due within 12 months. So it has liabilities totalling US$50.9m more than its cash and near-term receivables, combined.

Given Backblaze has a market capitalization of US$255.5m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Backblaze also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Backblaze's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Backblaze reported revenue of US$109m, which is a gain of 22%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Backblaze?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Backblaze had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$16m of cash and made a loss of US$54m. But at least it has US$22.9m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Backblaze may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 3 warning signs for Backblaze that 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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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.

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