Advertisement
U.S. markets open in 21 minutes
  • S&P Futures

    5,308.50
    +0.25 (+0.00%)
     
  • Dow Futures

    40,182.00
    +38.00 (+0.09%)
     
  • Nasdaq Futures

    18,497.50
    -6.25 (-0.03%)
     
  • Russell 2000 Futures

    2,142.90
    +4.50 (+0.21%)
     
  • Crude Oil

    82.66
    +1.31 (+1.61%)
     
  • Gold

    2,236.10
    +23.40 (+1.06%)
     
  • Silver

    24.86
    +0.11 (+0.46%)
     
  • EUR/USD

    1.0814
    -0.0015 (-0.14%)
     
  • 10-Yr Bond

    4.2120
    +0.0160 (+0.38%)
     
  • Vix

    12.98
    +0.20 (+1.56%)
     
  • GBP/USD

    1.2644
    +0.0005 (+0.04%)
     
  • USD/JPY

    151.2360
    -0.0100 (-0.01%)
     
  • Bitcoin USD

    70,678.73
    -295.59 (-0.42%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,956.05
    +24.07 (+0.30%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Will Talkspace (NASDAQ:TALK) Spend Its Cash Wisely?

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Talkspace (NASDAQ:TALK) shareholders should be worried about its cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Talkspace

When Might Talkspace Run Out Of Money?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2022, Talkspace had cash of US$153m and no debt. Importantly, its cash burn was US$72m over the trailing twelve months. Therefore, from September 2022 it had 2.1 years of cash runway. Notably, analysts forecast that Talkspace will break even (at a free cash flow level) in about 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.

debt-equity-history-analysis
debt-equity-history-analysis

How Well Is Talkspace Growing?

At first glance it's a bit worrying to see that Talkspace actually boosted its cash burn by 40%, year on year. The revenue growth of 7.5% gives a ray of hope, at the very least. Considering both these factors, we're not particularly excited by its growth profile. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

How Easily Can Talkspace Raise Cash?

Even though it seems like Talkspace is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. By looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Talkspace has a market capitalisation of US$117m and burnt through US$72m last year, which is 61% of the company's market value. Given how large that cash burn is, relative to the market value of the entire company, we'd consider it to be a high risk stock, with the real possibility of extreme dilution.

Is Talkspace's Cash Burn A Worry?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Talkspace's cash runway was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. Summing up, we think the Talkspace's cash burn is a risk, based on the factors we mentioned in this article. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 3 warning signs for Talkspace that potential shareholders should take into account before putting money into a stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies insiders are buying, and this list of stocks growth stocks (according to analyst forecasts)

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

Advertisement