Skillz (NYSE:SKLZ) can’t seem to do anything to please investors. The company reported substantially higher year-over-year (YOY) revenue in its most recent earnings report. However, SKLZ stock continues its long, slow descent. The stock is down approximately 65% since Feb. 5, 2021.
This is the first time I’m writing about Skillz and I like what I see. The sentiment among my InvestorPlace colleagues is generally bullish. Nevertheless facts are stubborn things and SKLZ stock is fighting bearish sentiment.
A Better Model
One reason that I like Skillz is that they are creating a better mousetrap. Skillz is a leader in mobile gaming and esports. As Luke Lango wrote, this has been a category that has a dreadful revenue model fueled by advertising that take away from the user experience. Right now, it’s a lose-lose model for gamers and developers.
But Skillz has a model where users pay to enter competitive tournaments for cash prizes. And Skillz gets a cut of the action. It’s a model that incentivizes users to play. It also rewards developers to make compelling games that will draw user interest. It’s a win-win model.
And this model is being showcased in a partnership that Skillz has engaged in with the National Football League (NFL). Developers are being invited to present their gaming ideas. At some point, the NFL will choose a winner and that game will premier prior to the2022 season. It’s a year away and a lot can go wrong. However, the NFL doesn’t generally take the wrong side of a marketing bet.
Betting On Competition
While I play my share of mobile games, I wouldn’t devote hours to compete with others. Or would I? I have to admit, if it would only cost me a nominal amount (some users can pay as little as 60 cents to play), I might be willing to test my skills against other players.
That’s because it speaks to my love for, and appreciation of, competition. And this is important to understand. I use these examples for a reason. With something like mobile gaming, I have to ask myself if I could see myself using the product. If Skillz can get me, and not just my kids, interested in their service, they could be on to something.
A Case of Lousy Timing?
In a year when companies have been rewarded for doing far less, Skillz seems to be getting unjustly punished. The company has been the target of several short seller reports and continues to draw short interest.
I have no specific reason why, but I suspect that some of it may have to do with SPAC fatigue. Skillz was one of dozens of companies to go public in the last 12 months via a special purpose acquisition company (SPAC). In the case of Skillz, the SPAC was Flying Eagle Acquisition Corporation.
Many of these companies not only lack profits, but are zero revenue companies. That’s not the case with Skillz. In fact in its most recent quarter, the company posted revenue that was 92% higher on a year-over-year (YOY) basis. The company also reported a 17% conversion to its paying monthly active users (MAUs) ratio.
That being said, the company did report a bigger earnings per share loss than expected. Which is always something that will give bears a reason to roar.
My Final Thoughts on SKLZ Stock
Patience is a virtue that’s in short supply in our society. But it’s frequently required to be a successful investor. Skillz potentially has a first mover advantage in a sector that is expected to grow to $1.5 billion in revenue by 2023.
The company will have to prove itself to investors. But that’s something that should only be a matter of time. If the company can string together a couple of solid earnings reports, it should be able to silence the bears.
In the meantime, the bulls have some heavy lifting to do. But with the stock unlikely to fall far below its initial price of $10, we’re approaching a point where the reward far outweighs the risk.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.