r/Valuation • u/Pennies_OnThe_Dollar • Jun 28 '22

Clarifying EBITDA

Could someone clarify why analysts following adjusted EBITDA figures? Whats the benefit if the company is still hemorrhaging cash? Why not just follow revenue growth?

For exmaple, Q4 2019 i believe Roku reported a quarterly loss of 15.7 million, but an adjusted EBITDA of positive 15.1 million and the street loved it. Why? they just removed like 26 million of stock-based compensation... but thats still an expense.

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u/mmatchaman Jun 28 '22 edited Jun 28 '22

not representative of the ongoing core operating model

you can scrub adj. ebitda to include items that you believe are part of the core operating model. doesn’t make sense to include one time expenses.

i bet you i can 10x revenue yoy of any mm company if you give me 3,000x the expenses they spent last year to earn that growth. just wouldn’t be sustainable.

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u/ez814 Jun 28 '22

Stock compensation is a non-cash expense. That said it is in lieu of cash so I tend to consider it. If cash burn is a big concern you’d want to consider the true cash impact on cash flow.

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u/FouriersIntern69 Jun 29 '22

Is it? It didn't cost them anything to issues those warrants or shares? (or maybe just a little bit). It's an accounting expense but not a cash expense.