A unique game development platform, Skillz (NYSE:SKLZ) has garnered a lot of attention in the past week. Gaming is hot this year and the mobile esports platform is here to make big moves in the industry. SKLZ stock is down 75% from its all-time high but it looks like the stock is trading at a discount and is a good chance to buy.
Skillz doesn’t do any games development by but enables outside developers to bring their created games to its platform and then receive a percentage of the revenue generated by the company.
SKLZ stock is on the rise over the past month, gaining from $8 to as high as $12. It’s now pulled back to $10.88 a share at Wednesday’s close.
The company recently reported third-quarter results and has been working on different strategies to attract users. The market was not impressed with the results but there are a lot of positives to look into.
I am bullish on SKLZ stock and believe that this is only the beginning for the company.
Strong User Growth
Skillz has reported 23 consecutive quarters of solid sales growth and this recent quarter was no different. The company reported revenue of $102 million, a 70% increase from the same quarter last year. It generates revenue whenever players enter the contest and wager on an outcome. Hence, when there is a new game, it will drive engagement further.
Its biggest success was “Big Buck Hunter: Marksman” which was launched in the third quarter and hit the number one spot in the app store. Players compete to hunt buck and other animals. “The name has a double-meaning, because you can compete for actual, real-life bucks, or money,” notes a gaming writer who goes by Evan Heisenberg. This led to new players on the platform and the company managed to increase monthly active users by 11% year over year to 3 million.
Even the monthly paying users increased on the platform and its further expansion will help the company move forward in the right direction. It has 509,000 monthly paying users on the platform. The average revenue per user is $11.40 which is up from $7.44 same quarter previous year.
Management is spending heavily on marketing. That does have an impact on the bottom line and could be a red flag for investors. I think it is an overreaction to the earnings report. However, with more partnerships and better game development, the company will be able to attract more paying users and this can help reduce the losses.
This is a stage where the management will have to spend on marketing activities to gain momentum but those will pay off in the long term. This might deter investors at this stage but the spending is not going to remain constant. As the company grows, it will manage to increase revenue while reducing the expenses and this will show on the bottom line, giving a push to SKLZ stock.
Bottom Line on SKLZ Stock
SKLZ stock is trading much lower than its all-time high of $46 which implies there is ample space to grow. Trust the long-term growth potential of the stock and take a bet when it is close to rock bottom. I believe investors should not look at the losses and focus on user growth. The company is in the growth stage and the stock is trading at a discount.
CEO Andrew Paradise recently purchased stock worth $5 million. Further, Cathie Wood’s Ark Innovation ETF (NYSEARCA:ARKK) last month added 2.1 million shares of SKLZ to boost its total holding in the platform to 13.3 million shares. Wedbush analyst Micheal Pachter has a “buy” rating on the stock with a target price of $25.
SKLZ stock has massive potential and a lot of room to grow, this is only the beginning for the company and the stock may not be trading this cheap in the near future. Place your long-term bet on the stock.
On the date of publication, Vandita Jadeja 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.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long-term gains. Her knowledge of words and numbers helps her write clear stock analysis.