HubSpot (NYSE:HUBS) Has Debt But No Earnings; Should You Worry?

Simply Wall St
April 18, 2022
Source: Shutterstock

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies HubSpot, Inc. (NYSE:HUBS) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for HubSpot

What Is HubSpot's Net Debt?

The image below, which you can click on for greater detail, shows that HubSpot had debt of US$402.7m at the end of December 2021, a reduction from US$478.9m over a year. But it also has US$1.20b in cash to offset that, meaning it has US$795.2m net cash.

NYSE:HUBS Debt to Equity History April 18th 2022

How Strong Is HubSpot's Balance Sheet?

According to the last reported balance sheet, HubSpot had liabilities of US$617.5m due within 12 months, and liabilities of US$683.6m due beyond 12 months. On the other hand, it had cash of US$1.20b and US$157.4m worth of receivables due within a year. So it actually has US$54.3m more liquid assets than total liabilities.

This state of affairs indicates that HubSpot's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$21.2b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, HubSpot 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 HubSpot 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, HubSpot reported revenue of US$1.3b, which is a gain of 47%, 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 HubSpot?

While HubSpot lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$177m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We think its revenue growth of 47% is a good sign. There's no doubt fast top line growth can cure all manner of ills, for a stock. 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. Case in point: We've spotted 3 warning signs for HubSpot you should be aware of, and 1 of them can't be ignored.

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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