Skillz Inc (NYSE:SKLZ), which bills itself as a leading mobile games platform, needs financial skills before SKLZ stock will turn around. It has been on a major downward slope since its peak a year ago.
The company is losing money head over heels, as I have written about in recent articles. Last month, I highlighted that Skillz is going into debt to stop its cash burn. The point is that SKLZ stock is not likely to turn out of its death spiral until it gets its financials in order.
And things are getting worse. So far this year, the stock is down 38.7%, closing at $4.56 as of Feb. 15. This is after it dropped 62.8% last year, falling from $20 to $7.44 by the end of 2021.
Skillz’s Upcoming Earnings Release
The market must not have too much faith in the upcoming fourth-quarter numbers. They are set for release after the market closes on Wednesday, Feb. 23.
Moreover, Skillz is following a new procedure for shareholders to upload their questions to the company. They can send them to this site up until close of business (COB) on Feb. 20. This is a new way for investors to deal with management directly and get answers to their questions.
However, investors should not expect much. Analysts predict revenue to be only minimally higher than last quarter. For example, analysts surveyed by Seeking Alpha have average estimates of $113.95 million in sales for the fourth quarter. But this is only 11.6% higher than Q3 revenue of $102.1 million.
That is not much given that SKLZ stock still has a market valuation of $1.86 billion. That represents almost five times the sales of $386 million forecast for 2021. It also represents 3.4 times 2022 estimated sales of $495 million.
These are very high ratios for a tech company that is still losing money on a net income basis and whose revenue growth is not that spectacular.
The Fundamental Issue With SKLZ Stock
I have pointed out in my previous articles that the main problem Skillz has is its marketing spending. This gaming software and management company has to spend huge sums as incentives for people to play and win at their clients’ games.
This is because Skillz operates an online-hosted platform on behalf of its independent game developer clients. It hosts tournaments and provides competitive gaming activities for the end-users in the games.
In effect, Skillz offers developers a software development kit (SDK) that manages competitions and prizes paid out to consumers in the games.
One way it provides incentives to bring people to these games is by offering bonus cash to first-time end users of the game developers’ sites. Page seven of its Q3 10-Q shows the company has to spend money on all kinds of other incentives.
Where This Leaves Investors in SKLZ Stock
As a result, its adjusted EBITDA was negative $41.7 million in the third quarter. Moreover, analysts don’t expect things will be materially different this coming quarter.
For example, the average estimate of seven analysts is for Skillz to lose 15 cents per share. This compares to a loss of 13 cents a year ago. Moreover, last quarter it lost 11 cents per share on a normalized basis.
Interestingly, analysts are very positive on SKLZ stock despite its miserable performance. It’s almost as if they don’t care that so far, this stock has done nothing but lose money for its shareholders.
For example, TipRanks reports that three Wall Street analysts have an average price target of $16.33 per share. That represents a potential gain of 258% over its Feb. 15 price of $4.56. Yahoo! Finance reports seven analysts have an average target of $14.86 per share, slightly lower.
So, if you believe the analysts, buy SKLZ stock — especially since it is down so much. But at least wait until you read the fourth-quarter earnings release to see if the company’s ability to make a profit has improved.
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On the date of publication, Mark R. Hake did not hold (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.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
