Andrew Paradise, the CEO of Skillz (NYSE:SKLZ), once wrote that he built the company on the premise of creating e-sports “for everyone.” Wall Street seemed to be on board with this ambitious vision for a while, but lately, the bull run in SKLZ stock has fizzled out.
After an 88%-plus run from its special purpose acquisition company (SPAC) merger in mid-December through early February’s $46.30 per share, SKLZ stock has given up most of that gain. The share price sits at $14.41 as of Monday’s close.
Skeptics might contend that Skillz is just another hype-and-fade story as the market grows weary of blank-check mania.
There may be some truth to that. Moreover, the bears were given an opportunity to add some ammo to their arsenal with Skillz’ most recent earnings report.
The results were mixed, I’ll admit. Nonetheless, there are data points that bolster the bull thesis, along with forward guidance that ought to scare the bears a little bit.
A Closer Look at SKLZ Stock
As I alluded to earlier, Skillz went public as the result of a SPAC deal. The shell company had the colorful name Flying Eagle Acquisition, which traded under the stock ticker symbol FEAC.
We could actually say that the business combination made history, as Skillz became the first publicly traded mobile e-sports platform back in December.
All of this should help to explain why FEAC/SKLZ stock flew from the typical SPAC stock price of $10 in May of 2020, to a 52-week high of $46.30 on Feb. 5, 2021.
After all, SPAC stocks were red-hot in the markets earlier this year. Plus, Wall Street evidently saw the value of a mobile e-sports platform during the Covid-19 pandemic.
Today, however, Covid-19 vaccines are being distributed to millions of people. Live, in-person sports events are opening up. As a result, investors might not be so excited about mobile e-sports.
Besides, the heyday of SPAC’s may have come and gone. And so, SKLZ stock has fallen from its peak.
So, at $14.41 a share, is this a problem, or an opportunity? It depends on your future outlook for Skillz, and for the mobile e-sports market in general.
Tracking the Growth of E-Sports
Thankfully for SKLZ stock holders, the e-sports market does appear to be poised for substantial growth.
InvestorPlace contributor Larry Ramer, as usual, has the statistics in his back pocket:
“[A]ccording to a Statista report issued in March 2021, e-sports generated $957 million of revenue in 2019 and was slated to reach $1.084 billion of revenue this year and $1.6 billion in 2024.”
Ramer calculates that if the company can obtain 15% of all projected global e-sports revenue in 2024, Skillz’ total sales would come in at $240 million.
Meanwhile, Skillz’ CEO claims that the mobile gaming market reached $86 billion last year, expects that market to grow to $161 billion by the year 2025.
The point here is that Skillz stands to take a small piece of a massive revenue pie. Paradise says that Skillz hosts over two billion e-sports tournaments per year.
If that’s true, then his company clearly has a strong presence in a potentially hyper-growth market.
A Mixed Quarter
Assuredly, the bulls and the bears will cherry-pick their favorite data points from Skillz’ first-quarter fiscal results.
Let’s just call it a “good news, bad news” situation. First, the good news for the quarter:
- $83.7 million in revenues, up 92% year-over-year (YoY)
- $79.4 million in gross profit, up 95% YoY
- Gross margin was 95%, representing a 100% YoY improvement
- Cash on balance sheet was $613 million
- No debt at the end of the quarter
Not too shabby, right? On the other hand:
- Net loss for the quarter came in at $53.59 million
- That translates to a net loss of 15 cents per share
- Wall Street was expecting a net loss of 10 cents per share
Even with the quarterly net earnings loss, the company evidently remains confident.
Indeed, Skillz has raised it 2021 revenue guidance to $375 million. This equates to 63% YoY growth, so perhaps the coming quarters won’t be marred by net earnings losses.
The Bottom Line
If the SKLZ stock bulls needed some motivation, the company’s optimistic forward guidance should give them a boost.
And now that the post-SPAC hype phase has passed, there’s plenty of room for the bulls to charge ahead in 2021.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.