3 Unprofitable companies booted from the ASX 200

The September 2022 quarterly rebalance removed eight companies from the ASX 200.

This included:

• The suspended AVZ Minerals (ASX: AVZ)

• The poor cashflow City Chic Collective (ASX: CCX)

• The massively de-rated Clinuvel Pharma (ASX: CUV)

• The disgraced EML Payments (ASX: EML)

• The fund out-flowing Janus Henderson (ASX: JHG)

This leaves us with Life360 (ASX: 360), Pointsbet (ASX: PBH) and Zip (ASX: ZIP) - all of which were the unprofitable 'unicorns' of 2020-21.

Financials at a glance

Life360 posted 108% revenue growth to US$99.8m for the first-half ended 30 June but its adjusted losses jumped five fold from -US$5.1m to -US$30.2m. The company had US$64.3m in cash to pursue its growth ambitions.

Pointsbet revenues rose 52% to $296.5m in FY22 but net losses accelerated 43% to -$267.7m. The company has a rather outsized cash position of $520m relative to its $710m market cap.

Zip reported 57% revenue growth to $620m and a 46% increase in losses to $1.02bn. Its worth noting that $821m of the losses reflect the impairment of goodwill and intangibles. Zip had $241.3m in cash at the end of June.

Cash for growth: To what end?

It's difficult to envision a world where these companies inspire a re-rate with their current 'cash for growth' narrative within a rising interest rate and troubled macro environment.

The US Fed has signaled a 'higher for longer' policy path as inflation is expected to remain above the 2-3% target range amid high gas prices, extreme weather and sticky rent prices.

Capital markets have been relatively closed for 2022, especially for the growth-heavy end of town. There have been 61 new ASX listings in 2022, compared to 240 a year ago.

The good thing is that these companies have enough cash to avoid a capital raising in the near-term, assuming losses stay relatively consistent year-on-year and no major capital spend (e.g. acquisitions).

Life360 and Zip are both targeting positive cashflow in 2024, underpinned by a leaner organisational structure and cost cutting.