Is Veritone (NASDAQ:VERI) 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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Veritone, Inc. (NASDAQ:VERI) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Veritone

What Is Veritone's Debt?

You can click the graphic below for the historical numbers, but it shows that Veritone had US$137.8m of debt in December 2022, down from US$195.1m, one year before. However, its balance sheet shows it holds US$184.4m in cash, so it actually has US$46.7m net cash.

How Healthy Is Veritone's Balance Sheet?

According to the last reported balance sheet, Veritone had liabilities of US$192.9m due within 12 months, and liabilities of US$151.6m due beyond 12 months. On the other hand, it had cash of US$184.4m and US$78.3m worth of receivables due within a year. So it has liabilities totalling US$81.8m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Veritone is worth US$199.8m, 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, Veritone 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 it is future earnings, more than anything, that will determine Veritone'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.

In the last year Veritone wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$150m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Veritone?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Veritone had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$1.0m of cash and made a loss of US$25m. However, it has net cash of US$46.7m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, Veritone may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for Veritone (1 is significant) you should be aware of.

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.