When Skillz (NYSE:SKLZ) posted quarterly earnings results on May 6, management failed to re-energize shareholders. SKLZ stock ended last week down by 10%. After trying to rally back to $20 before that and failing, the stock is in danger of re-testing lows not seen since last Nov. 2020.
Is there anything Skillz may do to lift its share price? The company envisions it will start supporting real-time multiplayer content genres. For example, Battle Royale is one such title.
SKLZ Stock In a Downtrend
Skillz lost its momentum in Feb. when the Nasdaq began its rapid descent. The index is masking the severe drop in Skillz and other momentum-driven stocks. FAANGM stocks account for much of the technology index’s daily movements.
On the surface, Skillz posted year-over-year revenue growth of 92% (from slide 4 in the earnings call presentation). Adjusted EBITDA climbed by 86% Y/Y while paying monthly active users grew by 81%. Skillz is eyeing the market opportunity ahead. The sector has 2.7 billion global gamers. Last year, the mobile gaming market enjoyed a value of $86 billion, growing 23% compounded annually from 2015 to 2020.
Skillz highlighted many opportunities ahead. It officially launched and started accepting submissions for the NFL and developer challenge. The brand association should give the company a much-needed lift. For example, Chief Executive officer Andrew Paradise said, “We believe that not only this results in a better user experience for end-users, but it also drives brand sponsored prizes, traffic, or both to our platform.”
Skillz will continue to innovate its platform and improve its user experience to keep its end-users engaged. The skeptical investor will believe the impressive audience growth is no longer a positive driver to its stock price. Conversely, customer retention matters when a company is losing money. Skillz posted an adjusted EBITDA loss of $31.2 million (per slide 9) Revenue grew to $83.7 million in the first quarter.
Skillz will need to sustain its revenue growth rate at the very least. Costs may exceed revenue in the short term. For now, shareholders will understand the need to invest in the business to fuel growth.
Analysts poked holes in the company’s metrics that undermined its growth figures. For example, analyst Jason Bazinet cited bearish reports against Skillz’s MAU weakness. Chief Financial Officer Casey Chafkin said that a download count or MAU is not a useful metric. Instead, the company uses paying MAU to measure the company’s business health.
Analysts have a mixed opinion on Skillz stock. Half of the Wall Street analysts rated the stock as a “hold,” while the other half rated it as a “buy.” The average price target of ~$27.00 implies a 71% upside, per Tipranks. Investors could score the stock on quality, growth, and value on Stockrover. Those figures suggest downside risks ahead.
Skillz scores best on quality, with a 48/100. It has no debt and strong cash on hand. It had $612.6 million in cash as of the end of March (per slide 11). The net quarterly losses are small enough that the company will not need to sell stock to pay for operating costs.
Skillz scores poorly on most quantitative metrics. The sentiment is worsening and has yet to reverse. Growth investors who thought the stock had limited downside are wrong. Momentum will dictate the stock’s price in the short term. Continue avoiding this stock so long as the Nasdaq ex-FAANGM remains weak.
By next quarter, Skillz will have announced results from new sports deals. When it demonstrates the NFL deal is not just for marketing but makes money, then start accumulating the stock.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.