Skillz Stock Requires Patience

Skillz  (NYSE: SKLZ) stock  is down 29% in the last month  

Image of two boys playing video games

Source: Shutterstock

But the loss is even worse for traders who bought the shares when they got caught up in the meme-stock craze. At that point, SKLZ stock soared to over $43 per share. Those who bought the stock  then and held onto it are looking at a  paper loss of about 70%.  

The bad news is that I think it’s unlikely that the stock will revisit $40 anytime soon. But there could be a path for the shares to trade significantly higher than their current price. The question is if investors will be patient enough to wait for the scenario to materialize.  

Developing Proficiency Takes Time 

As someone who grew up in an age when playing video games at the pizza shop was a preferable way to spend an evening with friends, I marvel at where gaming has gone. I also appreciate the video-game skills that my kids have developed.  

But I also know that they’ve spent literally hours to become proficient at the games they have enjoyed the most. Their patience was rewarded. 

That brings me to Skillz, which is a mobile gaming platform. As I said earlier, it will take time for the company to grow, but eventually, the firm can do so.   

How Does Skillz Make Money? 

Skillz provides a self-contained ecosystem for developers and gamers. Developers create content that is enhanced by analytics provided by Skillz.  As a result, the developers create games that their audience wants and will play. And that will lead to more revenue for Skillz as the amount of time that players spend with the games increases.  

Skillz will grow, according to the company, as players compete in online esports tournaments watched by millions of the users of its site.

Consequently , at its core, Skillz relies on advertisers to pay it for the privilege of getting in front of its users’ eyes. But how many users can Skillz be expected to attract?  

Larry Ramer is not that optimistic. Not too long ago, Ramer wrote: 

“Skillz’s audiences just aren’t very large. In the first quarter, the company reported monthly average users of 2.7 million, up just 4% versus the same period a year earlier. {T} hat’s not a very impressive total or rapid growth.

This is a fair point and one that the marketing side of me can’t find much fault with. However, one thing that remains intriguing to me about Skillz is its partnership with the National Football League. The collaboration is giving developers an opportunity to design “innovative NFL-inspired and branded mobile games…powered by the Skillz esports platform.” 

Whether you’re a fan of the NFL or not, you have to concede that it probably wouldn’t put its name on something that is likely to fail. That’s something worth considering. However, these football-oriented games won’t be available for another year.   

A more immediate benefit may come from Skillz’s $50 million investment in Exit Games, the developer of Photon, a platform used by thousands of game publishers and developers. This appears to be a critical partnership as Skillz looks to add multiplayer capabilities to its gaming lineup. 

Short Interest Still Weighs on SKLZ Stock 

The short interest in SKLZ stock is still around 20%. That makes investing in the company about as much of a game as anything its developers can come up with. And that’s a problem. As I wrote in late June, the high short interest was making it difficult to determine a fair price for the stock.  

And that gets to my point about patience. During the pandemic, many traders committed themselves to strategies that made trading stocks feel more like gambling.  I’m sure that many of them have found that the reward is worth the risk.  

The underlying premise of these trading strategies is that every stock can go higher. But the question that investors should ask is whether every stock should go higher, at least right away. The question is particularly pertinent for the stock of a company like Skillz that is not yet profitable and does not generate a great deal of revenue.   

Patient Investors May Finally Be Rewarded 

SKLZ stock is a speculative name and should be treated as such. While the fundamental risks facing the company appear to be small, that doesn’t mean that the firm will become profitable anytime soon.  

But the recent partnerships keep SKLZ stock interesting , at the right price. Expecting a moon shot from the shares is likely to end in disappointment. But holding the stock and allowing the company’s business plan to develop may be a rewarding path.  

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.  

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.  

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