Mobile-gaming platform Skillz (NYSE:SKLZ) stock has been on a long-running downtrend. The stock ran up to a record high of $46.30 in early February but slumped to $7.97 on Oct. 11. It currently hovers around $11, down over 40% year-to-date (YTD).
In late 2020, Skillz went public via a reverse merger with special purpose acquisition company (SPAC) Flying Eagle Acquisition, headed by managers of the blank-check company that took DraftKings (NASDAQ:DKNG) to the public market earlier that year.
Following its public debut, SKLZ stock skyrocketed, mainly thanks to investors buying into the hype, which is not unusual for SPACs. Then, shares plummeted over the last several months, and hit all-time lows shy of $8.
Markets for mobile games and esports have grown exponentially during the last couple of years. Recent research on esports highlights, “Newzoo expects growth to continue through 2021, with 8.7% year-on-year (YOY) growth, ending the year with 240.0 million occasional viewers and 234.0 million eSports enthusiasts, a total eSports audience of 474.0 million.”
The same report anticipates that in 2021 esports revenues should exceed $1 billion, a growth of 14.5% YOY. Looking forward to 2024, esports revenues are forecast to reach $1.6 billion, at a compound annual growth rate (CAGR) of 11.1% from 2019-2024.
Operating in a niche sector, SKLZ stock offers aggressive growth and high profitability potential. Although the disruptive gaming platform recently seems to have fallen out of favor with investors, analysts highlight that management could still change the sentiment in the right direction. Therefore, today’s article looks at what might be in store for SKLZ stock in the rest of 2021 and how interested readers could add Skillz shares into their portfolios. Let’s dive in…
SKLZ Stock’s Q3 Results
San Francisco–based Skillz provides a cloud-based ecosystem by connecting global players. Put another way, it does not develop games. Rather its platform enables online game developers to easily create and run multiplayer games. Players can also wager to win monetary prizes.
SKLZ’s third-quarter financial results were released on Nov. 3. Thanks to 47% growth in paying monthly active users (MAU) compared to prior-year period, revenues soared 70% YOY to $102.1 million, generating 23rd consecutive quarter of outperformance.
Adjusted net loss came in at $62.8 million, translating into a loss of 16 cents per diluted share. In the year-ago quarter, net loss and loss per diluted share were $42.9 million and 14 cents, respectively.
Adjusted EBITDA was negative $41.7 million—$17.3 million lower than the year-ago period. Cash and equivalents ended the quarter with $540.3 million with no debt. Looking forward, management affirmed its full-year 2021 revenue guidance of $389 million.
On the results, CEO Andrew Paradise remarked, “We’re so proud to see our new content exceeding expectations, with Big Buck Hunter: Marksman hitting the number one spot in the sports category of the App Store last month.”
Skillz recently finalized the acquisition of Aarki, a global demand-side advertising platform with 465 million monthly users. Wall Street expects the move to help Skillz improve its player acquisition capabilities. SKLZ also formed a partnership with Exit Games, a leader in synchronous gaming technology, to accelerate the expansion in popular racing, shooting and fighting games for the years ahead.
Adding SKLZ Stock to Portfolios
SKLZ shares trade at 13.05x trailing sales and 8.74x book value. The metrics indicate an overvaluation amid increasing losses. For example, by comparison, its peers Activision Blizzard (NASDAQ:ATVI), NetEase (NASDAQ:NTES), and Zynga (NASDAQ:ZNGA) currently trade at 3.71x, 5.01x, and 2.74x book value, respectively.
Based on growth opportunities in the burgeoning esports industry, SKLZ is a high risk/high reward stock offering a long-term upside. Growth investors who can tolerate some choppiness could consider buying the shares around current levels, especially if shares move toward $10, or even below.
Among 8 analysts polled, Skillz stock has a “buy” rating. Also, the consensus is for a 12-month median price target of $17, implying a return of close to 50% from current levels. The 12-month price range currently stands between $13 and $25.
Alternatively, interested readers could consider buying an exchange-traded fund (ETF) that provides exposure to SKLZ stock as a holding. Examples include the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the De-SPAC ETF (NYSEARCA:DSPC), the iShares Russell 1000 Growth ETF (NYSEARCA:IWF), and the VanEck Gaming ETF (NASDAQ:BJK).
The Bottom Line on SKLZ Stock
The mobile esports platform has been spending heavily on advertisement to acquire customers. So far this year, Skillz has spent far more on sales and marketing than revenues. Thus, revenue growth has not translated to bottom line results investors want. Though recent metrics have shown big improvement for its paying MAU ratio, Wall Street is not fully impressed.
Management is taking steps to steer the company toward further growth and eventual profits. However, those moves have not created an upside momentum yet. Nonetheless, given the recent decline in price, or growth investors who can handle long-term volatility, now might be the right time to invest in SKLZ stock. Meanwhile, Skillz could find itself a takeover candidate.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.