Is Uber Technologies (NYSE:UBER) 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. We can see that Uber Technologies, Inc. (NYSE:UBER) does use debt in its business. 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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Uber Technologies

What Is Uber Technologies's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2022 Uber Technologies had US$9.53b of debt, an increase on US$7.83b, over one year. On the flip side, it has US$4.18b in cash leading to net debt of about US$5.35b.

How Healthy Is Uber Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Uber Technologies had liabilities of US$8.65b due within 12 months and liabilities of US$14.3b due beyond that. On the other hand, it had cash of US$4.18b and US$3.09b worth of receivables due within a year. So its liabilities total US$15.7b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Uber Technologies has a huge market capitalization of US$57.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Uber Technologies 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, Uber Technologies reported revenue of US$21b, which is a gain of 98%, 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.

Caveat Emptor

While we can certainly appreciate Uber Technologies's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost US$2.8b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$108m of cash over the last year. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Uber Technologies 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.