#INTERNET MONEY GROSS BEAT BANK FREE#

#INTERNET MONEY GROSS BEAT BANK FREE#

Though Tesla is still a high-growth manufacturer, there are big question marks regarding its ability to sustain positive free cash flow as it works to build its scale here and abroad. Since autos and computer chips tend to get knocked around a bit from recessions, Tesla (NASDAQ: TSLA) and Ambarella (NASDAQ: AMBA) - both of which have positive free cash flow but negative earnings - could get even bumpier than they are already. It's a great company with a long-term winning strategy, but a breather could be in store if consumer shopping activity taps the brakes. Shopify and its e-commerce platform again comes to mind as facing some risk, not just because it caters to small businesses and retailers but also because shares are up an incredible 180% in 2019 alone as of this writing.

Retailers, consumer electronics, semiconductors, and automakers are all examples of cyclical businesses that tend to decline in times of recession. Others, though, are less durable and fall because fewer consumers are buying.ДЄ cyclical type of business like this is normal, but if a cyclical business is already in the red when times are good, things could get a lot worse when they aren't. If the business is still going strong, these are ideal 'buy the dip' candidates. Some stocks get clobbered in a recession not because sales are falling but because their stock valuation was higher than what the average investor found acceptable. When considering whether to sell, another area of consideration is how sensitive a tech company is to consumer spending. Dealing with excessive and inflexible cash burn in times of uncertainty makes managing a business that much harder.

When you add in SG&A expenses, companies like Uber and Lyft that have low gross profit margins and are operating in the red suddenly look even less attractive during an economic slowdown. Uber's year-ago gross profit was 53.3% and Lyft's was 38.6%. An added concern is that, though both are growing revenues by double digits, gross profit is decreasing as they add new lines of business in an attempt to reach a profitable scale. Through the first six months of 2019, Uber's gross profit was 45.4% and Lyft's was 33.5%. For many tech-based service providers, gross profit margins well in excess of 50% are ordinary. Two that come to my mind are the high-profile 2019 IPOs Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT). Companies that haven't yet reached this optimal balance sit in a precarious situation, as it means they have little wiggle room to ride out a storm. As more sales are added, though, average costs fall and profit margins grow. Remember Econ 101? There's this thing called scale: make too little of a product or service and gross profit is low. Gross profit subtracts the cost it takes to actually make a product or produce a service. Speaking of spending too much money, gross profit margin is another metric to look at if de-risking your portfolio sounds like a good idea. Companies with below-average profit margins Simply selling companies such as these because they have negative earnings without a little extra due diligence doesn't cut it.Дata by YCharts. A few examples of unprofitable businesses that are actually cash flow positive are cybersecurity outfit Zscaler (NASDAQ: ZS), big data company Alteryx (NYSE: AYX), and Shopify (NYSE: SHOP) - which just recently entered positive territory. A slew of companies report negative earnings yet still post positive free cash flow that largely goes unnoticed by many investors. Given the definition, free cash flow would be a good place to start when determining whether to sell a tech company if an economic downturn is nigh. To figure out if a company's actual cash balance is increasing or not, investors need to take a look at a company's free cash flow, money left over after cash operating expenses and capital expenditures are paid for. Earnings don't tell the whole story, though, as noncash expenses like depreciation on assets are included in the metric. Many investors keep a close watch on earnings, a simple measure of profitability that conforms with generally accepted accounting principles, or GAAP. Image source: Getty Images Companies with no free cash flow Finger pointing to a stock chart showing a downturn.

Internet money gross beat bank