Jeremy Bowman, The Motley Fool
5 min read
CoreWeave (NASDAQ:CRWV) stock has tumbled over the last month as concerns about its balance sheet mounted in response to a social media post showing its bond yields have reached as high as 15%.
That reflects both rising interest rates and investor suspicion about the company’s ability to repay its debt. CoreWeave has been heavily dependent on debt to fund its scorching-hot growth, which has caused its interest expense to soar, leading to significant losses on both the income statement and in cash flow.
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For that reason, CoreWeave’s third-quarter earnings report was highly anticipated, and the company exceeded expectations. Revenue jumped 168% in the quarter, ahead of estimates, though its debt and interest expense continued to grow as well.
Investors initially seemed ambivalent about the report, as the stock ticked higher after hours, but after the earnings call, it started to rally, jumping double digits. Let’s dig behind the headline numbers and take a look at three things investors should know about CoreWeave’s earnings report.
Image source: Getty Images.
1. The debt worries look overblown
Based on conventional metrics like the current ratio, CoreWeave’s balance sheet looks like a huge risk, with current liabilities more than double current assets. However, CoreWeave’s situation is highly dynamic as it’s growing revenue by triple digits in an economic boom that some have characterized as the biggest infrastructure build-out in history.
CEO Michael Intrator seemed to be referencing the concerns about rising bond yields when he told investors, “We will not use the unsecured debt market to fund our business at current yields, nor do we need to.” He also noted that the company’s weighted average cost of debt fell 250 basis points year-over-year to 7.9%, which should also reassure investors.
The company now plans to use delayed draw term loans matched to customer contracts to fund the majority of its capital expenditures. Those loans have historically priced at 225-550 basis points above the secured overnight financing rate (SOFR) depending on the customer. At today’s rates, that would be less than 10% at the high end and closer to 6% at the low end. Importantly, those loans can be drawn from gradually, according to deployments.
