Four Popular Companies That Are Burning Cash

Four Popular Companies That Are Burning Cash

Making a profit is crucial for the success of a company. But some popular companies are struggling to capture any profits. 

Money losing companies like Uber, Chewy, and Peloton all flopped after their IPO. This may indicate that Wall Street is losing its appetite for cash burners. 

While its too early to call a sector rotation into value stocks, it’s safe to say money burners are losing steam. 

There is a lot more than just four companies that have a cash burn problem. The companies picked in this article are all large caps and all have a negative profit margin of 15% or more.

Snapchat ($SNAP)

The social media company that specializes in dog filters and dancing hotdogs is burning cash.

Snapchat had droves of teenagers flock to the platform back in 2012 and 2013. It was different and more personable than Facebook. The fact that many adults didn’t use it also made it more popular with the younger demographic.

The competition from Facebook and Instagram is now showing its ugly face. Instagram reported that its stories feature now has double the number of daily active users. While Snapchat is still a popular social media app, it’s losing users and money.

Take a look at the companys net income over the last 4 years.

12/31/201812/31/201712/31/201612/31/2015
-$1,255,911-$3,445,066-$514,643-$372,893

Snapchat has a net profit margin of -77.50% (TTM).

Some investors are still quite bullish on the stock hoping the company can eventually make a profit. Snap has increased revenue over the last 4 years which is a good sign of growth. The company just needs to become profitable before it runs out of money.

Kraft Heinz ($KHC)

The ketchup and macaroni king Kraft Heinz has seen better days. Earlier this year the company reported a $12.6 billion loss over the last 3 months of 2018. The company slashed its dividend and is also getting investigated by the SEC for its accounting practices.

Lack of sales wasn’t the issue, the CEO blamed rising operations costs.

Kraft Heinz is one of the top ten holdings in Berkshire Hathaway, which is owned by the famous Warren Buffet. When asked about his investment Buffet told CNBC that he “paid too much for Kraft.”

The company reported a total net income of -$10,229,00 for 2018. Kraft Heinz has a net profit margin of -43.20% (TTM).

The company is going to need to make some changes and find a way to turn things around. Kraft Heinz’s current long term debt was $30.8 billion at the end of 2018.

Lyft ($LYFT)

The rideshare company is burning through cash, just like its rival Uber. Lyft went public earlier this year in April. Since then its shares have started to form a death spiral. The stock is currently trading around its record lows along with Uber.

The company has a history of net losses and a net profit margin of -78.70% (TTM). Take a look at its reported net income over the last 3years.

12/31/201812/31/201712/31/2016
-$911,335-$688,301-$682,794

Rideshare services are in high demand and continue to grow in popularity every day. The problem is that the business model lacks a way of creating sustained profitability.

Lyft admitted it may never make money because of its “intense competition.” Let that sink in if you are a long term investor.

iQiyi ($IQ)

Nicknamed “the Netflix of China” iQiyi gave investors hopes of gigantic returns. Even though it’s losing money like Netflix, it’s stock performance is suffering.

One could blame the trade wars turmoil between the U.S. and China, but the fact is the company is burning cash.

The Chinese video streaming platform reached a record of 100 million subscribers this year. Yet it still has not been able to make a profit.

iQiyi is an industry leader however, it faces competition from Tencent and Alibaba’s Youku.

Here is a look at the company’s net income over the last 4 years.

12/31/201812/31/201712/31/201612/31/2015
-$9,109,776-$3,736,932-$3,074,022-$2,575,112

iQiyi has a net profit margin of -38.40% (TTM)

The potential is there for iQiyi but the bottom line is ugly. If the company continues to increase revenue and turn a profit it’ll be a different story. Investors will also need to hope for a good trade resolution between China and the U.S.

The love affair for money-losing companies may be coming to an end. As fears of recession grow, investors are dropping companies that are burning cash.

I wrote this article myself and the views expressed are of my own opinion. This article should not be considered financial advice. I have no relationship with any company whose stock is mentioned in this article.