Many companies rely on misleading “adjusted” metrics to trick investors into thinking their business is stronger than it is in reality. The law allows companies to invent entirely new metrics or manipulate others to support a narrative that paints a more positive picture of the firm’s fundamentals.
These companies often include disclaimers that caution against using non-GAAP metrics. Yet, the Street often builds its narratives on these “adjusted” metrics.
“Adjusted” metrics are not the only problem. GAAP earnings are often misleading. Unusual, one-time gains or losses frequently distort reported GAAP results and cloud investors’ ability to understand the true economic performance of companies.
To uncover real, core earnings, investors must dig into the details buried in the footnotes.
This week’s Danger Zone pick is a perfect example of just how misleading reported earnings can be. The company recently reported positive GAAP earnings for the first time since its IPO. Meanwhile, Core Earnings remain highly negative. Further analysis reveals the company is burning through cash at an alarming pace. Only by leveraging our superior fundamental data can investors get the truth about this company’s profitability, or lack thereof.
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Costs Are Still Higher Than Revenues
In the company’s quest to take market share, it has adopted a growth-at-all-costs approach, even going so far as stating “growth is always the answer” in the company’s fiscal 4Q24 shareholder letter.
Total operating expenses were 103% of revenue in fiscal 2025.
Cash Burner
Despite positive GAAP net income, the company continues to burn through cash each year. The company’s free cash flow (FCF) has been negative on an annual basis in every year since fiscal 2019. On a quarterly basis, FCF has been negative in 14 of the 15 quarters over the same time.
In fiscal 2025, the company burned -$425 million in FCF excluding acquisitions. From fiscal 2020 through fiscal 2025, the company burned through a cumulative $5.1 billion (18% of enterprise value) in FCF excluding acquisitions. See Figure 1.
Figure 1: Cumulative Free Cash Flow: Fiscal 2020 – Fiscal 2025
Sources: New Constructs, LLC and company filings
Shareholders Keep Getting Diluted
Per Figure 2, the company’s shares outstanding increased from 47 million in fiscal 2019 to 323 million in fiscal 2025.
Whether through new share issuances or stock-based compensation, funding the business with new investors capital is not sustainable and not that different from a ponzi scheme.
Figure 2: Shares Outstanding: Fiscal 2019 Through Fiscal 2025
Sources: New Constructs, LLC and company filings
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