A lot was riding on Skillz’s (NYSE:SKLZ) fourth-quarter results. Investors had hoped for a solid conclusion to the year and potentially upbeat guidance for 2022. However, the opposite transpired as the company failed to accomplish “the aggressive goals we had set for 2021.” Though there are positives with the company, its risk profile raises several red flags, making SKLZ stock unattractive at this time.
SKLZ stock had been on a tear after its much-anticipated initial public offering (IPO) in 2020. Its monster rally saw the stock trade over $40. However, the stock lost over 90% of its value in the past year. The testing macroeconomic environment has weighed down growth stocks like Skillz. On top of that, concerns over its path to profitability have turned to exasperation as of late. Hence, SKLZ stock finds itself in the eye of the storm, which puts its investors in an incredibly tough spot.
The Fourth Quarter Was A Downer
All eyes were on Skillz’s fourth-quarter results to turn the stock’s fortune around. However, it has done the exact opposite, as SKLZ stock shed 30% on earnings day. Fourth-quarter earnings failed to impress investors as it missed analyst estimates on both lines.
Revenues of $108.85 million for the quarter missed estimates by $5.2 million despite a 61% improvement from the prior-year period. Moreover, its GAAP earnings per share (EPS) of negative $0.25 missed estimates by $0.10.
Paying monthly active users (PMAU) shot up 56% on a year-over-year basis to $0.61 million. However, average revenue per paying user (ARPPU) grew just 3% from the prior-year quarter. Skillz continues to spend a truckload on marketing expenses, which convolutes its path to profitability.
For the full year, the company’s net loss increased to $99 million from $67 million in the previous year. Additionally, revenues of $384.1 million came in below the management’s guidance of $389 million. On top of that, its 2022 revenue guidance is perhaps the biggest disappointment. The management estimates the company could rake in $400 million in sales, which is significantly below the consensus estimates of $548.8 million.
On a more positive note, Skillz boasts a massive cash balance of over $500 million. With its cash resources, it will continue to expand the games on its platform. Moreover, it can also work on advancing its international expansion opportunities.
Sector Growth Prospects Point To Upside
The mobile gaming industry is likely to grow at a breathtaking pace in the next decade. In 2020, smartphone gaming revenue accounted for a whopping 50% of total video gaming sales globally. With the increasing mobile penetration rates and smartphone utilization, that number should rise significantly. Mobile gaming sales will likely surpass the $100 billion mark by next year.
With double-digit growth expected in the industry until at least 2026, Skillz has a tremendous opportunity to expand its market share. It is currently a small player in the game but could become an industry stalwart if it innovates and expands its library of games. With popular games such as Big Buck Hunter and Trivia Crack on its platform, the company seems to be moving in the right direction. It recently invested in Exit Games, which gives it access to Photon, a multiplayer engine that can power real-time multiplayer games.
Final Word on SKLZ Stock
As a believer in Skillz’s business proposition, I hoped every quarter would be a step in the right direction.
However, it seems as though its bull case continues to weaken with time. Its chances to break even seem slim at this point and it may take a long time before it can make money for its investors. Hence, it is a highly risky bet which is best to avoid.
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On the date of publication, Muslim Farooque 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
