The Ark Innovation ETF (NYSEARCA:ARKK) bought 2.1 million shares of Skillz (NYSE:SKLZ) on Oct. 21., according to 24/7 Wall St., the SKLZ stock buy brings the ETF’s total holdings of the esports gaming platform company to 13.3 million shares.
Although the SKILLZ position is only good for 0.70% of the ETF’s $19.4 billion in total assets, it’s got a shot at becoming one of the star portfolio manager’s biggest successes.
Well, maybe not Tesla (NASDAQ:TSLA) big, but significant all the same. For example, if Skillz stock miraculously reverted to its all-time high of $46.30, which it hit in February, the ETF’s Skillz shares would be worth $617.2 million and a weighting of 3.18%. That’s good for 11th position. Currently, it’s 34th.
Since the share purchase, SKLZ stock has gained almost 17% through the second-last trading day in October. It’s on a roll.
SKLZ Stock: Where to From Here?
There is no doubt the short-sellers are battling it out with the Reddit crowd over the ultimate direction of Skillz stock. More than 555 million shares, or 23% of its total, are sold short.
A short squeeze seems possible in the near term, but the reality, like many stocks, is that neither side appears ready to take the bull by the horns.
In the interim, Wood keeps building her position in the company.
Over at the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the fund holds 7.0 million shares of Skillz, good for 22nd position in ARKW. So, put those two positions together, move up to $46.30 in the blink of an eye, and Ark Investment Management is sitting on a $1 billion investment.
And it could get even better than that.
The portfolio manager has been selling little bits of Tesla as it’s moved over $1,000 in recent weeks. On Oct. 21 and 22, she sold more than 126,000 shares for proceeds of $114 million. Then on Oct. 25, she sold another 22,598 shares of Tesla.
Those proceeds have to go into other stocks at some point.
Another Successful Quarter of Sales Growth
Skillz has been able to string together 22 consecutive quarters of sales growth — profits, or should I say losses, are another story altogether — and looks likely to ring in a 23rd consecutive quarter of strong sales growth when it reports earnings in early November.
The analyst estimate for Q3 2021 is $102.3 million. The company’s full-year guidance is for $375 million. That doesn’t even include its acquisition of Aarki.
In July, I suggested that Aarki insiders should hang on to the four million shares of SKLZ stock they got as part of the sale to Skillz.
“Between Wood’s ownership, the fact that Skillz came public through a Jeff Sagansky and Harry Sloan SPAC, and the company participates in mobile gaming, one of the hottest industries around, I think the risk-reward proposition is excellent between $15 and $20,” I wrote on July 14.
“If you buy at current prices, be prepared for a lot of volatility. I would not be surprised if it tests $15 on the downside again soon. If you do buy now, I’d keep some cash on the sidelines so you can buy some more at $15 or less.”
I also said that adding Aarki to the mix should help Skillz keep generating more revenue from users, commonly referred to as ARPU, or average revenue per user.
In the second quarter, it reported an ARPU of $12.46. That was 20.4% higher than the first quarter of 2021. So if it can keep moving the needle higher, you can be sure the profits will start to roll.
InvestorPlace’s Alex Sirois believes that investors should wait to buy until after the third-quarter results are released before making a move.
“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,” Sirois stated on Oct. 28.
“So, although analysts are predicting strong revenue growth, I wouldn’t jump into SKLZ stock until the company proves it can control its losses.”
While I get where my colleague is coming from, the company has plenty of cash ($692.8 million) to get it through the rest of this fiscal year and all of fiscal 2022. So I would be squarely fixed on top-line growth and ARPU.
If these two numbers grew sequentially and year-over-year by double digits, all’s good with the company. Worrying about losses at this point is how investors miss out and quality growth stories like Skillz.
And, besides, as my colleague says, there’s a lot of good things happening in its product development at the moment. So avoid the noise and focus on what matters for SKLZ stock in the near term.
While Cathie Wood has been both a buyer and seller of SKLZ stock, ultimately, I believe she’ll make out like a bandit.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.