Yahoo Finance Does Airbnb (NASDAQ:ABNB) Have A Healthy Balance Sheet?
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Airbnb, Inc. (NASDAQ:ABNB) does use debt in its business. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Airbnb
What Is Airbnb's Net Debt?
As you can see below, Airbnb had US$1.99b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$11.1b in cash, so it actually has US$9.10b net cash.
How Strong Is Airbnb's Balance Sheet?
According to the last reported balance sheet, Airbnb had liabilities of US$14.1b due within 12 months, and liabilities of US$2.50b due beyond 12 months. Offsetting this, it had US$11.1b in cash and US$175.0m in receivables that were due within 12 months. So its liabilities total US$5.37b more than the combination of its cash and short-term receivables.
Since publicly traded Airbnb shares are worth a very impressive total of US$93.8b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Airbnb boasts net cash, so it's fair to say it does not have a heavy debt load!
But the bad news is that Airbnb has seen its EBIT plunge 14% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Airbnb can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Airbnb has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Airbnb actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.
Summing Up
We could understand if investors are concerned about Airbnb's liabilities, but we can be reassured by the fact it has has net cash of US$9.10b. And it impressed us with free cash flow of US$4.2b, being 249% of its EBIT. So we don't have any problem with Airbnb's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Airbnb, you may well want to click here to check an interactive graph of its earnings per share history.
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.
