Today, investors in Skillz (NYSE:SKLZ) and SKLZ stock are seeing a lot of red. At the time of writing, shares are down 7%, a relatively large single-day move.
Today’s move is a continuation of some pretty significant downside momentum for SKLZ stock. Since hitting a high of more than $46 this year, Skillz has seen its share price drop nearly 70%.
Today, it appears a short report issued by Eagle Eye Research is the latest downside development for this stock. This report was tweeted by an anonymous user from what appears to be a new account. Accordingly, there’s some speculation as to how valid these arguments are.
However, the market appears to be taking notice today. Indeed, this short report appears to have been enough to spook some investors in this stock.
Let’s dive a bit more into what the report alleges, and why investors are showing concern today.
Short Report Highlights Issues SKLZ Stock Business Issues
This short report appears to reflect some pretty bearish sentiment about Skillz’s underlying business model. Among the assertions made in the short report are the following:
- Skillz’s business model is fragile, relying on a handful of games with high churn rates and suspect unit economics.
- The short-seller believes Skillz is misrepresenting the company’s true financial condition.
- Accordingly, attention is being paid to the company’s “bonus cash” awards.
- The short-seller alleges bonus cash is a non-cash expense for the company, but the cash liability to players is real. Accordingly, the short-seller views this model as unsustainable.
- Furthermore, the short-seller alleges Skillz is round-tripping its revenues. Eagle Eye estimates that by recognizing revenue from bonus cash (virtual money it gives its customers), it has materially overstated its revenue.
- Eagle Eye estimates that cash revenues were approximately 29%-47% of GAAP revenues over the past three years.
Now, these allegations are certainly worrisome for the company. Whether we’ll see a response come out remains to be seen. However, for now, investors have something to think about.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.