There is a tentative case building for investing in mobile games platform Skillz (NYSE:SKLZ). After topping out at $46.30 in early February, SKLZ stock has fallen 76% to just over $11. Yet, the average analyst price target for the shares is $18, which is more than 60% above the current price.
This indicates SKLZ stock may be attractive at current levels. However, cautious investors may want to wait until after the company reports its third-quarter results, which are scheduled to be announced after the market close on Nov. 3.
Strong Revenue Growth Expected
For the second quarter, Skillz reported record revenue of $89.5 million, which was a 52% increase over the year-ago quarter. It was also the 22nd consecutive quarter of revenue growth, according to the company.
Analysts expect Skillz to make that 23 quarters in a row, with a consensus estimate of $102.3 million in sales for the third quarter.
Following the Q2 report, management upped its full-year revenue guidance to $375 million to $376 million, excluding the acquisition of technology-driven marketing platform Aarki.
Analysts are even more optimistic, with a consensus revenue forecast of $390 million, which would represent a 69.5% jump in sales over 2020. And they project a 42.5% increase in revenue in 2022 to $555.7 million.
Heading into the company’s Q3 announcement, the bulls are likely to note that Skillz has beaten analysts’ top-line estimates in each of the past three quarters. However, when it comes to the company’s bottom line, there are some red flags.
Look for Improving Losses Before Buying SKLZ Stock
Although I just pumped up Skillz on the basis of its projected revenue growth, there’s a reason to be skeptical. And the reason is that losses are mounting.
Losses nearly quadrupled in Q2 on a year-over-year basis, rising to $79.6 million from $20.2 million a year ago. It was a similar story in the first quarter, with the company’s net loss widening to $53.6 million from $15.5 million in the first quarter of 2021.
So, although analysts are predicting strong revenue growth, I wouldn’t jump into SKLZ stock until the company proves it can control its losses.
Skillz reported a net loss of $42.9 million during the third quarter of 2020, so it will be interesting to see what the Nov. 3 earnings report will bring.
A Few Bright Spot for Skillz
While the company is struggling to stem the sea of red, Skillz has remained attractive enough to lure top talent into its ranks.
The company recently appointed Vatsal Bhardwaj as its chief product officer. Bhardwaj was formerly the general manager and director of game tech for Amazon (NASDAQ:AMZN) Web Services. He’ll be leading the global product team and report directly to Skillz CEO Andrew Paradise. Bhardwaj now has the chance to lead a much smaller, more agile company and potentially have a greater impact than if he had remained at Amazon.
Another encouraging development for Skillz was the August announcement that the popular “Trivia Crack” franchise would be building a new game exclusively for the Skillz platform. That is undoubtedly positive news for the company.
The Bottom Line on SKLZ Stock
I personally wouldn’t invest in SKLZ stock until after the company releases earnings on Nov. 3. When Skillz announces, potential investors should take note of revenue growth and updated projections while being cognizant of increasing losses.
If, however, the company shows it can shrink its losses, then SKLZ stock might be worth another look.
On the date of publication, Alex Sirois 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 InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.