Skillz (NYSE:SKLZ) stock represents a mixed bag of news to unravel. I’ll start with the short-seller report back in March and its aftermath.
I think there’s an interesting narrative there which doesn’t paint a particularly flattering picture of the company’s management.
Despite the company’s strong earnings and internal projections there should be a strong warning to investors considering jumping on board now.
Short-Seller Report
I’d like to rehash a take on the aftermath of the short seller report critical of Skillz from March. Roughly two weeks after short-seller Wolfpack Research issued a report lambasting Skillz, the company responded with a spate of insider selling. My colleague Ian Bezek noted the scale of management’s response:
CEO Andrew Paradise sold more than 8 million shares. Yes, 8 million! That’s nearly $200 million that the CEO cashed out as soon as Wolfpack raised its concerns about the company. Adding insult to injury, Skillz’s chief technology officer, chief revenue officer, the vice president of legal operations and a Skillz director all sold stock as well. Skillz’ management team offered a unanimous and resounding message for the public that you’d be a fool to ignore.
I agree with him, it does indeed bode very poorly for Skillz. If we track SKLZ stock’s price movement against the Wolfpack Research Report and insider selling, there’s a clear narrative.
Timeline to Insider Selling
Wolfpack Research released its report on March 8. SKLZ stock actually rose by 29% in the week following the report. This was likely a result of Skillz’ fourth quarter and year-end earnings report released on March 10. The report contained very good results including a Q4 year-over-year revenue increase of 95%, and a 2020 full year revenue increase of 92%.
It appears that the short seller report got shuffled to the bottom of the pile, so to speak. SKLZ stock increased in value for the week following the report. Then it took a sharp turn south on March 15.
My instinct tells me that this was likely a result of Wolfpack’s research trickling down through the markets. Management would’ve been keenly judging the market reaction after the report dropped. It seems clear to me that CEO Andrew Paradise was simply waiting until SKLZ stock dipped to where it was when Wolfpack issued its report.
That occurred on March 23. SKLZ’s price was $23.34 when Paradise sold his 8 million shares. The stock’s price was $24.45 when Wolfpack’s report dropped. Paradise saw the writing on the wall and cashed out to the tune of $196 million.
Four other directors and company officers sold on the same date at the same price. They collectively offloaded 2,021,229 shares, making over $39.4 million collectively in the process.
With short seller reports, as with all character indictments, it’s fair to give “innocent until proven guilty” consideration. The insider selling looked like indictment enough to me.
Investors could be forgiven for thinking that Skillz would be untouchable after such a fiasco. Yet, it isn’t an open and shut case.
Moving Forward
It looks like Skillz may exceed analysts’ revenue guidance for Q1 based on recent forecasts. The company anticipated that it would see $80 million in revenues during the quarter, slightly exceeding analyst expectations. The analysts give a range of $72.2 million to $79.6 million. If the company reaches that upper threshold markets may not care.
But I think the greater discrepancy exists between Skillz’ EBITDA projection and that of Wall Street. Skillz predicts $37 million while Wall Street anticipates no more than $24.5 million in EBITDA. That’s quite a gulf between the two figures.
Investors may be very happy on May 4 when earnings are released if that’s the case.
All in all, though, I can’t see any reason to pick up shares now. The thinking that surprises me is that conversation boards on Yahoo! Finance are quite gung-ho about the company and its shares.
I don’t see much positive in the aftermath of the last month, but judging by the comments I read, it’s almost as if nothing happened at all. I’d say the company should have lost a fair amount of faith, but perhaps it lost none.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
