No. of Recommendations: 5
"They said that after the costs of the layoffs are absorbed they should be roughly
breaking even in today's macro environment, and they have a robust balance sheet."
After reviewing yesterday's results and listening to the call, I'm less convinced about
both these things. I need to update my model to see if it tells me anything more. If I
get off my butt and do so, I'll plan to share.
I would love to see your analysis. I am also skeptical that they would actually be breaking even in today's macro environment if it holds steady the rest of the year. They'll have to show me huge improvements for me to believe that.
How one judges their balance sheet seems to key on how one assesses the value of their loans held.
Main assets:
$422m cash
$110m restricted cash
$1,010m loans at what they call fair value
Main liabilities:
$986m borrowings.
There are various other assets and liabilities which net out at ~$120m positive net value. Goodwill and intangible assets are about $83m of those other assets lumped together, so if we ignore those it nets out at +$37m, pretty inconsequential.
The $1.01 billion in loans they have on their books at the moment could increase or decrease in value depending on what prevailing interest rates do. If we assume interest rates have roughly peaked and will take a while to come down, then the value should be fairly stable for the next year. If the economy tanks into a recession and the default rate on the loans goes up beyond what they're currently expecting, then the value goes down, but at the same time interest rates could be expected to decrease in such an environment for a counteracting force.
A pessimistic take on their balance sheet might write off the loans and the restricted cash against the borrowings, leaving them with $422m cash. That should be enough to ensure they don't go broke in the coming year, given the austerity measures already taken and that we've already devalued the loans significantly in this approach.
