Skillz is a new-ish addition to the stock market, but what does this mobile gaming platform bring to the table and why should we invest?
Aug. 25, 2021
Skillz (NYSE: SKLZ) is a leading mobile gaming platform that is all about connectivity and collaboration. It is similar to Roblox in the sense that it provides the space for developers to build successful franchises by enabling competition in their games. The platform plays host to billions of casual e-sport tournaments for people all over the world.
But, unlike Roblox, Skillz is not a market favorite right now and it is down over 70% from its peak earlier in the year. However, this company still has plenty of potential and room for growth. So here are the reasons why Skillz is the one gaming stock I am buying right now.
A look at Skillz’s financials
Skillz makes money by taking a cut of all entry fees for e-sport tournaments held on its platform. It also generates revenue through advertisements and brand sponsorships. In its most recent earnings report, revenue grew 52% year-over-year (YoY) to $89.5 million, whilst gross profit was also up 52% YoY, at $85.1 million. This is the 22nd consecutive quarter of revenue growth for the mobile games platform.
However, investors were not too enthused by Skillz’s earnings per share, which were estimated to come in at a loss of $0.09. Unfortunately, the company instead produced a loss of $0.21. Its stock has lost 21% since the receipt of this news. This has been justified by the company as an increased cost of user acquisition and is something that will lessen over time.
What I like about Skillz
Skillz is a company that has plenty of potential, not only in the mobile gaming side of things but also in the gambling industry. Whilst many investors turned to DraftKings as their gambling stock of choice, Skillz could actually represent a better option. It is a leader in the more predictable and ever-growing gaming and e-sports market, and in February this year, it signed a multi-year partnership agreement with the NFL to bring more data into its offering. With more states becoming open to the possibility of legalized sports betting, Skillz has an anchor in this market to profit as momentum grows.
On the gaming side of things, Skillz recently acquired Aarki, an AI-enabled mobile marketing platform. The acquisition cost $150 million in cash and stock and it will serve to enhance Skillz’s abilities to both acquire and retain users. The combination of the machine learning algorithms and Skillz’s massive amounts of data will keep the company growing for years to come.
Additionally, Skillz has just invested a $50 million minority stake in ‘Exit Games’, which is a company that allows developers to create and host real-time, synchronous multiplayer games. This investment will open the door for expansion into other, more popular gaming genres such as first-person shooter and battle royale.
Risks to Skillz’s share price
This mobile gaming platform is currently seen as rather discounted, having fallen drastically from all-time highs of $46.30 per share back in February. There is still massive potential for revenue growth from participation in the e-sports and betting space, however, this area is very popular at the moment, and if the sector loses momentum, then Skillz will certainly see a reduction in demand. This will, in turn, lead it to underperform until demand begins to rise again.
For example, in July, Roblox lost nearly one-quarter of its value in a stock correction. Furthermore, on the gambling side of things, DraftKings saw many investors sell their stakes in the company as its shine has begun to dull somewhat over the past few months.
Skillz could be negatively impacted if this lessening of interest expands to the sector as a whole.
Skillz’s growth potential
Despite Wall Street’s lackluster attitude towards this stock, it still has plenty of potential. Having acquired Aarki and invested a minority stake in ‘Exit Games’, the company has paved itself a substantial runway for new growth. Furthermore, Skillz has not yet fully tapped the potential in sports betting and as such it has plenty of opportunities to expand in this space as online betting becomes legalized in more states across the U.S.
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