Skillz (NYSE:SKLZ) stock is one of the many tech stocks that took a battering due to interest rate hikes and the Russian invasion of Ukraine. However, management is trying to stem the damage by pivoting toward its cloud business, which can become a very lucrative segment. The allegory being drawn is with Amazon (NASDAQ:AMZN). Although the company is very diversified, it has become highly focused on the cloud space. Amazon Web Services (AWS) has grown to become the bulk of operating income for Amazon.
AWS is the backbone of many companies and organizations, especially startups and small businesses. It allows these companies to focus on what they do best — innovate and develop new products, rather than having to worry about IT infrastructure.
Skillz wants to make a new segment of the architecture market like AWS, but different from what most other companies are offering. To do so, Vatsal Bhardwaj, who served as General Manager and Head of Game Tech for AWS, will be key in this process. Bhardwaj is now with Skillz as its Chief Product Officer.
However, Skillz Cloud is going to function differently from AWS. AWS enables users to develop, test and deploy new applications with high-quality infrastructure. AWS offers storage and computing services, as well as database and analytics tools. Meanwhile, it is not easy to try out games on your mobile device before downloading in this day and age. Skillz’s cloud has a new feature that lets you do just that — play games for free without downloading them. Users will have fewer issues discovering new games and can help onboard new users with ease, as they wouldn’t have to download the game to play.
Is SKLZ Stock a Buy, Sell, or Hold?
Skillz continues to be in the red despite significant financial growth. The lack of disciplined growth is not a good sign for investors, so management’s primary focus is to improve margins on a tight budget.
One of the biggest line items for the company is sales and marketing. Marketing spending is broken into two main categories: promoting user engagement and acquisition. You can’t have one without the other and they both deserve equal attention. For the last two years, this company has been spending more money than it makes. However, on their investor day, the company showed their latest initiatives to tackle this issue.
For example, the Aarki acquisition allows Skillz to tap into a lower-priced advertising market. The investment in Aarki is more than paying for itself and Skillz can allocate its marketing capital more efficiently through this platform. In addition, the company has collected data regarding the lowest-performing marketing initiatives to eliminate them.
Skillz has done a good job of identifying areas for operational efficiency. Coupling these initiatives with the cloud business, SKLZ stock is a contrarian play for the risk-tolerant investor.
On the publication date, Faizan 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.