Skillz (NYSE:SKLZ) closed its merger with blank-check company Flying Eagle Acquisition in December 2020 and launched into the public markets as the first traded mobile esports company. SKLZ stock had drummed up quite a bit of investor support, but since its debut, shares have fallen flat.
Essentially, Skillz is all about providing a platform for competitive, mobile gaming. As InvestorPlace analyst Matt McCall wrote, this business model promises high profits over the long run because game developers take up much of the heavy lifting. Skillz just the offers the platform for competitive gaming tournament. The company also offers livestreaming, gameplay clips and the ability to produce highlight reels.
That is why, ahead of its reverse SPAC merger, Skillz was a company buzzing with retail investor interest. Esports gained in popularity during the Covid-19 pandemic, as did mobile gaming.
However, Skillz has not had an easy time in 2021. In fact, SKLZ stock is down roughly 20% year to date, and short reports carry much of the blame. Wolfpack Research was the first to criticize Skillz, launching its short report early in March. The firm questioned the company valuation, said its revenue projections were comical and said demand for its esports offerings already appeared to be declining. Then, just a week later, Twitter user @Restrinct published a short report highlighting risks Skillz faces from the Google Play Store.
Just this week, a third anonymous short-seller entered the scene. Posting on Twitter as Eagle Eye Research, a new account with very few followers published a short report bashing Skillz. This report says that Skillz is misrepresenting its revenues as well as its overall financial condition. Although some on social media have been quick to link Eagle Eye and Wolfpack, the report still coincided with a noteworthy dip in SKLZ stock.
Why Is SKLZ Stock Leveling Up Today?
With all of this downward pressure building up on Skillz, what has SKLZ stock up more than 30% today? And what do investors think about the big move?
Importantly, there is no one clear reason for the jump. As the Motley Fool speculates, one reason for the change in sentiment could be improving expectations for the quarterly report. Rich Smith highlighted that free cash flow could turn positive by 2023, sooner than some investors may have expected. Although that could certainly spark enthusiasm in a non-yet-profitable company, there may be something else on the horizon.
Because Skillz has attracted short-sellers in such a high-profile way, it seems social media chatterers are speculating that a short squeeze is at play. According to data from Fintel, Skillz has a short ratio of 28%. Following powerful short-squeeze activity in GameStop (NYSE:GME), Discovery (NASDAQ:DISCB) and Clover Health (NASDAQ:CLOV), investors are certainly looking for opportunity.
So what is the bottom line? It is plausible that a short-squeeze rally is responsible for the jump in Skillz today. However, as InvestorPlace contributor William White highlighted, there are a variety of other theories circulating. Be cautious and be sure to keep SKLZ stock on your radar here.
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.