Simply follow the numbers in order to understand why Skillz (NYSE:SKLZ) stock is one to avoid.
Those numbers aren’t good despite the company’s attempts to make investors believe that there are positives to be taken from its recent quarterly earnings report.
Those earnings point to continuing trouble. Skillz operates a mobile gaming platform that will likely face increasing difficulty in attracting investor capital.
So let’s follow the numbers from the firm’s Feb. 23 earnings report to understand why Skillz is one to avoid.
A Closer Look at SKLZ Stock
Skillz reported 61% year-over-year revenue growth which reached $108.8 million and gross profit that increased by 56% to $100.4 million.
Still, investors shouldn’t be drawn into the first few lines of the earnings report despite their promise. They do look attractive, but it’s a deceptive attraction that should make investors wary.
Gross profit is a calculation of revenues minus the cost of goods sold. It is not to be confused with net gain. Although the company’s gross profit hit $100.4 million in Q4 it didn’t actually make money overall.
In fact, Skillz’s net loss increased to $99 million in Q4. That figure was markedly higher than the $67 million net loss it reported a year earlier.
Skillz isn’t getting stronger, it is simply increasing the amount of money that it loses. Don’t be fooled into believing that revenues and gross profits equate to net gains, they don’t.
Continuation of Earlier Issues
Skillz saw revenues and gross profits increase by 65% and 67% respectively in 2021. However, net losses increased from $145.5 million to $181.4 million during that period.
That’s the wrong direction to be headed, and I wouldn’t expect it to stop anytime soon.
That’s because Skillz gave guidance that it expects $400 million in 2022 revenues. The company posted $384.1 million in revenue in 2021. So investors cannot expect similar top-line growth in 2022.
The 67% in top-line growth it reported in 2021 could look more like 4.14% in 2022. That’s a drastic decrease. In fact, it makes it hard to consider Skillz in the same breath as other growth stocks at all moving forward.
Skillz will continue to have the same problems with net losses in 2022 that it experienced in 2021. After all, the company should only see modest 4.14% revenue growth in 2022.
How then can it do anything to improve the $181.4 million net loss it suffered in 2021? I don’t believe it can without a massive jump in revenues, and 4.14% revenue growth is a drastic slowdown.
The Bottom Line
It’s hard to call SKLZ stock a growth play given that the top line is flattening very quickly. Net losses are going to be worse based on simple but powerful calculations.
Even if Skillz were showing impressive top-line growth next year market cyclicality doesn’t favor growth stocks. Inflation has caused investors to rotate out of growth in favor of safety.
Skillz is neither of those in any case. And that’s why investors should absolutely think twice before putting their capital into SLKZ stock. In a few words, steer clear. Skillz isn’t even going to provide strong topline growth according to its own projections.
The company already has massive losses against it. Without strong revenue growth, it is dead in the water.
On the date of publication, Alex Sirois 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.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
