Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Taboola.com Ltd. (NASDAQ:TBLA) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Taboola.com's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Taboola.com had US$145.2m of debt in December 2023, down from US$226.0m, one year before. But it also has US$181.8m in cash to offset that, meaning it has US$36.7m net cash.
A Look At Taboola.com's Liabilities
The latest balance sheet data shows that Taboola.com had liabilities of US$424.0m due within a year, and liabilities of US$226.8m falling due after that. On the other hand, it had cash of US$181.8m and US$317.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$151.9m.
Since publicly traded Taboola.com shares are worth a total of US$1.49b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Taboola.com also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Taboola.com's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Taboola.com wasn't profitable at an EBIT level, but managed to grow its revenue by 2.8%, to US$1.4b. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is Taboola.com?
Although Taboola.com had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$52m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. For riskier companies like Taboola.com I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.