Mobile esports firm Skillz (NYSE:SKLZ) is having a rough day. It looks like the latest news from the company has SKLZ stock heading down almost 10%. So what should you know now?
Essentially, the slump in Skillz shares appears to be stemming from news of a secondary offering. The company released a press release on Thursday evening announcing its plans to sell a total of 32 million shares. Of these, 17 million will come from the business and 15 million will come from existing shareholders. According to Skillz, all proceeds will go toward working capital and other general corporate purposes.
So why is this news causing SKLZ stock to drop?
There are two things for investors to note. The first is that Skillz is offering these 32 million shares at $24 each. Even after falling today, that is still below the current share price. This raises concerns of dilution, and historically, can cause investors to panic. The second thing to note is that the company was rather vague about how it will use these proceeds. Shareholders may be looking for more information that would justify the secondary offering.
For instance, Chinese electric vehicle maker Nio (NYSE:NIO) saw similar price movement in January 2021. At the time, the company announced it was looking to raise some cash through offering senior convertible notes. In question was the lack of information about why. Shareholders were looking for more justification about what projects or initiatives the company would use the money for.
Perhaps that is what is happening here. Skillz may simply be trying to leverage recent momentum in the esports world. And maybe it does have big plans that could benefit from some extra cash. However, without any further commentary in the press release, it seems investors are panicking.
What to Know About SKLZ Stock
So what else should investors know about Skillz and SKLZ stock here?
One thing to note is that SKLZ closed its SPAC merger with Flying Eagle Acquisition in December 2020. Since starting to trade independently on the New York Stock Exchange, shares are up just over 35%. The company has intrigued investors because of its promises in the esports and mobile gaming world. Essentially, it offers software to take regular mobile games and turn them into esports. This happens through tournaments and gameplay clips offerings.
As you consider the move today in SKLZ, one other thing to keep in mind is the reopening narrative. Skillz, like other esports name, was a beneficiary of the Covid-19 pandemic. Some investors may be wary of how reopening will shake out for winners in an at-home world.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.