Cash Flow Question For Saul

Hello Saul,

First off all I would like to thank you for the knowledge you share with us here.

Secondly, I am not English fluent, therefore, I apologize in advance if my sentences sound weird.

I just read part 1 and 2 of your knowledge base. There is a lot to learn and I guess that I will have to read it a couple of times! :slight_smile:

You are mentioning that we should discard business that are free cash flow negative. Did you change your view on this? I am asking as Shopify and Twilio are not cash flow positive but are two stocks you own.

Thank you for your time and keep up the good work!

Best,
Dominic

4 Likes

You are mentioning that we should discard business that are free cash flow negative. Did you change your view on this? I am asking as Shopify and Twilio are not cash flow positive but are two stocks you own.

Hi Dominic, Your English is fine, by the way. The only reference I could find about Cash Flow in Parts I and II of the Knowledgebase was where I was quoting from someone else:

Here’s another a nice way to evaluate companies for investment. Look at Cash Flow. You want to make sure the company is self-sustaining, producing positive Free Cash Flow, and not eating away at its Cash Balance. You’d also like to see Free Cash Flow grow from year to year.

There are a couple of answers to your question. First of all, Free Cash Flow is not one of my make-or-break definers for an investment. I’d certainly make exceptions anyway for companies that are growing revenues as fast as Shopify and Twilio (86% and 60% last quarter). And Shopify’s cash was way, way up from a year ago, so it’s not eating its cash. And Twilio had operating and net losses of $12 million on $245 million in revenue, so we are talking very small amounts. (Twilio also has three times as much cash as a year ago, but it’s probably due to their IPO, at least in part).

Hope this helps,

Saul

2 Likes

Thank you Saul. Your answer is much appreciated.

Dominic

1 Like

And Shopify’s cash was way, way up from a year ago, so it’s not eating its cash.

actually, if you look at the cash flow statement here:

https://investors.shopify.com/Investor-News-Details/2017/Sho…

Cash Flow from Operations at 14m (mainly due to share based comp - see WEB’s notes on this again in the latest BH report) with PPE and intangibles expenditures of 26m with acquisitions at 14m; free cash flow was negative.

The cash went up due to the follow on offering.

Course, as you say, given revenue growth, expense growth at those rates is by the company’s choice most likely, esp. with that BS strength…

1 Like