There’s no doubt that money can be made by owning shares of unprofitable businesses. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you’d have done very well indeed. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should HashiCorp (NASDAQ:HCP) shareholders be worried about its cash burn? For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.
Check out our latest analysis for HashiCorp
How Long Is HashiCorp’s Cash Runway?
A company’s cash runway is calculated by dividing its cash hoard by its cash burn. As at October 2022, HashiCorp had cash of US$1.3b and no debt. Importantly, its cash burn was US$101m over the trailing twelve months. That means it had a cash runway of very many years as of October 2022. Importantly, though, analysts think that HashiCorp will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.
How Well Is HashiCorp Growing?
HashiCorp actually ramped up its cash burn by a whopping 64% in the last year, which shows it is boosting investment in the business. While that certainly gives us pause for thought, we take a lot of comfort in the strong annual revenue growth of 53%. Considering the factors above, the company doesn’t fare badly when it comes to