Skillz (NYSE:SKLZ) stock went tumbling after the company announced fourth-quarter results. It’s trading below $3 today.
The stock is down 90% in the past year. Many might think of it as a bargain, but there are inherent risks that should not be ignored.
SKLZ stock was once trading as high as $36 but has been in the single-digit range since October 2021.
On top of that, the financial results were disappointing and so was the guideline for this quarter. I believe there are several issues with Skillz and it may not be able to enjoy the success it did in 2021. With that in mind, let’s dig deeper into my investment analysis of SKLZ stock.
Disappointing Fourth-Quarter Results
The company reported fourth-quarter results recently. Its revenue hit $108 million, a 61% year over year rise. Gross profit reached $100 million and the net loss went from $67 million from the prior-year period to $99 million this year.
With a rise in paying monthly active users, the average revenue per paying user increased 3% year over year and reached $59. The total expenses have almost doubled from the previous year and so have the current liabilities.
This is a worrying trend and if the business is spending more to increase the user base, the revenue should outperform the expenses at some point in time. This may happen in the future, but not anytime soon.
The full-year revenue fell short of guidance by 1% and the net loss for the year amounted to $181 million which is much more than the $145 million from the prior-year period. Skillz also has $300 million in debt and $743 million in cash and cash equivalents.
The company is expecting revenue of $400 million in 2022 and revenue after engagement marketing of $245 million. I think that Skillz is aiming too high and the spending cuts might not be adequate to help the company reach profitability.
Currently, it is spending a lot more on acquiring customers than it is taking in. This is one thing it needs to work on immediately. Skillz is trying to reduce the cost of acquisition and improve the quality of games offered on the platform but we do not know if that is going to work.
One may also argue that the high cost of customer acquisition could pay off in the long term but there are other costs that may not work in favor of the company.
I am talking about the bond offering. The secured notes have a coupon rate of 10.25% and this is not a good way of raising money. I wouldn’t put my money on SKLZ stock until it inches closer to profit.
What to Do With SKLZ Stock
Drew Crum, a Stifel analyst has lowered the price target of the stock to $3.50 with a “Buy” rating after the fourth-quarter results.
The analyst believes that it is an appropriate move to shift the strategy around engagement marketing in order to cut losses but it also comes at the expense of growth.
Michael Pachter, a Wedbush analyst has a price target of $7.50 with an “Outperform” rating. The analyst expects the company to capture increasing wallet share through the unique business model. Michael Graham, a Canaccord analyst has a price target of $7 and a “Buy” rating on the stock.
Even if you have a high-risk tolerance, I would not suggest you put your money on SKLZ stock. Yes, it can rebound in the long term but the risks remain. Additionally, the stock will not go as high as it once did in 2021. Tread carefully and try to avoid risking your money with SKLZ stock. There are several other mobile gaming stocks you can consider.
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.
