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Is LivePerson (NASDAQ:LPSN) Weighed On By Its Debt Load?

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  • LPSN

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that LivePerson, Inc. (NASDAQ:LPSN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for LivePerson

What Is LivePerson's Debt?

The image below, which you can click on for greater detail, shows that at September 2020 LivePerson had debt of US$187.1m, up from US$176.4m in one year. But it also has US$198.7m in cash to offset that, meaning it has US$11.5m net cash.

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

How Strong Is LivePerson's Balance Sheet?

The latest balance sheet data shows that LivePerson had liabilities of US$206.4m due within a year, and liabilities of US$198.2m falling due after that. Offsetting this, it had US$198.7m in cash and US$66.5m in receivables that were due within 12 months. So its liabilities total US$139.5m more than the combination of its cash and short-term receivables.

Given LivePerson has a market capitalization of US$3.54b, it's hard to believe these liabilities pose much 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, LivePerson boasts net cash, so it's fair to say it does not have a heavy debt load! 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 LivePerson 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.

Over 12 months, LivePerson reported revenue of US$344m, which is a gain of 23%, 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.

So How Risky Is LivePerson?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year LivePerson had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$28m of cash and made a loss of US$122m. But at least it has US$11.5m on the balance sheet to spend on growth, near-term. LivePerson's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for LivePerson that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

This article by Simply Wall St is general in nature. 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.

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