The Shorts Have Gotten the Wrong End of the Stick on Skillz Stock

Mobile gaming platform Skillz (NYSE:SKLZ) stock has attracted a lot of retail interest off-late. Its percentage of float shorted has hovered over the 20% mark in the past three months.

Three friends playing a mobile game against each other.

Typically short-sellers tend to push low-quality and fraudulent businesses, but that doesn’t seem to be the case with SKLZ stock.

Skillz has a fascinating yet complex business model which has an incredible growth runway ahead.

SKLZ stock has had it rough since going public back in December. Six-month returns from the stock are at negative 45%. Its business model has elicited strong responses from the bulls and bears, which is why it is one of the hottest battleground stocks in the market.

However, consensus price estimates for the stock suggest that it’s trading at a 59% bargain at this time. Moreover, with forward revenue growth estimates at more than 66%, the sluggishness in its stock price is inexplicable.

The stock price should eventually rise as the company wows investors with its performance and executes its agenda.

A Closer Look at SKLZ Stock

Skillz effectively provides the platform and software infrastructure for mobile games to be played competitively. It essentially hosts games for developers via its software development kit.

In hosting games on its platform, it provides a whole list of services, including loyalty rewards, payment services, competitive play, and others.

The platform is asset-light and remarkably scalable. Moreover, Skillz can easily modify and adapt its software to accommodate new games. Hence, it boasts incredible gross margins of over 90%.

The software allows users to place wagers on a number of games. The wagering makes things more interesting and allows entities to hold eSports tournaments as well. It allows smaller game developers to effectively integrate an array of features without building them from scratch.

Additionally, not offering games of chance allows the company to bypass many of the regulatory hurdles facing the industries such as iGaming. The benefits are becoming evident in the numbers. Players spend double the amount of time on Skillz-connected games than other competitor platforms.

Roadmap for Growth

One of the common criticisms of Skillz is its reliance on simplistic games such as Bingo and Blackjack. These games have contributed the bulk of revenues to the company.

Skillz has successfully released viral games, which have comfortably surpassed $1 million annualized GMV. Moreover, it is also expanding its genre footprint. It launched its first-ever first-person shooter game called Big Buck Hunter. Additionally its also testing its technology to support real-time genres such as Battle Royale, racing and others.

In terms of its earnings performance, its top-line growth continues to impress with every passing quarter. Its first quarter raised its full-year guidance to $375 million, representing a 63% year-over-year growth.

Furthermore, CEO Andrew Paradise talked about partnering with major brands to host gaming events. Such actions will draw eyeballs to the platform and lower customer acquisition costs. Most recently, Playboy and Skillz got together for an event.

Moreover, Skillz’s much-talked-about developer challenge with the NFL continues to progress as promised. Skillz announced that the semi-finalists would be moving on to the next phase, and everything that is laid out has come to pass. 

Final Word on SKLZ Stock

Skillz has an interesting but largely misunderstood business model, which has hurt its stock price. It seems it’s only a matter of time before the company’s stellar performance will carry its share price higher.

Skillz continues to execute on its promises and has a massive growth runway ahead. Therefore, it’s a stock to invest in for the long haul.

On the date of publication, Muslim Farooque 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.

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