Easily among the most perplexing investments on the table right now is Skillz (NYSE:SKLZ). A mobile gaming platform that facilitates social gaming and esports elements into the mix, SKLZ stock is almost pitch-perfect for what this generation desires: mobility, connectivity, digitalization and perhaps even an opportunity to win some cash.
I’m more of a console person myself, as you might infer from my bio below. So I’ll let my InvestorPlace colleague, Joseph Nograles, explain the key catalyst driving SKLZ stock:
“The Skillz platform enables the setting up of games to be played for prizes or real money. This can be done in a one-on-one format or something similar to an esports tournament. So imagine a massive Angry Birds type tournament where all participants pay an entry fee and receive real money prizes. Skillz’s technology platform makes this possible in almost any game, not just those developed by large triple-A game studios.”
Adding to the excitement for SKLZ stock, Nograles also points out that Wall Street matriarch Cathie Wood included the underlying company in ARK Next Generation Internet ETF (NYSEARCA:ARKW). I think it’s worth pointing out that SKLZ has a 1.43% weighting in the fund, ranked 23 out of 53 companies.
Finally, a cursory glance at what my other InvestorPlace colleagues have written suggests that SKLZ stock is a buy, especially at these prices. So, the question is, why in the flipping heck are shares printing red ink?
Below are three reasons I’ve come up with.
Consumer Sentiment Is Awful for SKLZ Stock
While everybody celebrated the outstanding March jobs report – and after an awful year in 2020, we do have reason to celebrate – what wasn’t discussed is consumer sentiment. I get it. Americans are an optimistic bunch and the beatings will continue until morale improves. And the metric isn’t exactly printing great numbers.
Still, given that consumer sentiment is an economic indictor that measures consumer optimism about their finances and the overall health of the economy, I find it glaring that the index is down 24% year-over-year. Further, it seems precariously perched between the 2020 highs and the lows of 2008.
If consumer sentiment were a stock, technical analysts might regard the chart as printing a bearish flag formation.
But the bigger issue is that unless people feel confident about the economy’s trajectory, they’re not going to spend their money frivolously on gaming platforms. True, the data moving forward could move the needle in favor of SKLZ stock. For right now, though, investors are skeptical.
More People Returning to the Office
If you have private conversations – I’m not sure who’d openly admit to this – with trusted colleagues, some of them might say that the novel coronavirus pandemic was a blessing. Essentially, the pandemic gave many white-collar workers the freedom to work from home.
But that freedom is gradually waning and the jobs data from the Bureau of Labor Statistics confirms it. “In March, 21.0 percent of employed persons teleworked because of the coronavirus pandemic, down from 22.7 percent in the prior month.”
With people back in the office, the social element of mobile gaming may be less of an incentive. Further, a return to the in-person grind could leave many employees exhausted at the end of the day, preferring to stream content from Netflix (NASDAQ:NFLX) or the like.
The Nature of the Beast
Though I won’t overtly criticize the March jobs data, it’s worth pointing out that while the economy added 916,000 jobs, the labor force is down 8.4 million jobs (or 5.5%) from its pre-pandemic peak in February 2020, according to the BLS.
Moreover, employment in leisure and hospitality led the March gains with a jump of 280,000. This of course stems from states lifting many of their Covid-19 restrictions. However, it also means that this sector – which isn’t the biggest wage driver, let’s be honest – contributed nearly 31% to the March recovery.
In other words, the data may not be accretive for SKLZ stock and its underlying business. You need people to spend money on the platform, not just engage it.
SKLZ Stock: Maybe Good for a Scalp?
Despite the positives surrounding SKLZ stock – and there are many, including a possible groundbreaking deal with the NFL – shares continue to print an ugly picture in the charts. As of midday April 9, SKLZ is trading at $17.47. Its 200-day moving average is $17.81 while the 50-Day MA is up top at $29.48.
The concept is intriguing, no doubt. But the market isn’t listening, and that’s the ultimate arbiter. If you’re down for a gamble you may want to consider SKLZ stock as a scalp trade – as in, make your quick profit and run. But if you trade on the fundamentals, you should probably wait for better economic signals.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.