Is Backblaze (NASDAQ:BLZE) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Backblaze, Inc. (NASDAQ:BLZE) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Backblaze

What Is Backblaze's Net Debt?

As you can see below, Backblaze had US$4.99m of debt at June 2024, down from US$8.35m a year prior. But it also has US$23.6m in cash to offset that, meaning it has US$18.7m net cash.

How Strong Is Backblaze's Balance Sheet?

The latest balance sheet data shows that Backblaze had liabilities of US$55.1m due within a year, and liabilities of US$27.6m falling due after that. Offsetting this, it had US$23.6m in cash and US$5.75m in receivables that were due within 12 months. So it has liabilities totalling US$53.3m more than its cash and near-term receivables, combined.

Of course, Backblaze has a market capitalization of US$290.3m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Backblaze 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.

Over 12 months, Backblaze reported revenue of US$115m, which is a gain of 24%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Backblaze?

We have no doubt that loss making companies are, in general, riskier than profitable ones. 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$7.2m of cash and made a loss of US$50m. But the saving grace is the US$18.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. 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. 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. For example Backblaze has 4 warning signs (and 1 which is concerning) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.