Skillz (NYSE:SKLZ) just released its Q1 results and a shareholder letter. The problem is it produced more of the same — massive losses. That is not going to help SKLZ stock.
I pointed out in my last article on Skillz that unless the company starts producing free cash flow (FCF), or even just positive adj. EBITDA, SKLZ stock will keep tanking.
So far this year, SKLZ stock is down 72% year-to-date (YTD). The stock may take a post-earnings bounce after the positive-sounding statements in the Q1 shareholder letter. But investors should not kid themselves. The longer the company keeps burning through cash, the more the stock is going to fall.
For example, even at $2.30 per share, the company has a market valuation of almost $1 billion ($980.8 million). This is despite the fact that it projects it will make just $400 million in revenue this year. Moreover, its adj. EBITDA loss in Q1 was $61 million on $93.4 million in revenue. In other words, its loss margin was -65.3%. That is horrific.
Where This Leaves SKLZ Stock
Management says that things are slowly getting better. It projects that its marketing spending will be lower by the end of the year and that its adj. EBITDA losses will be lower as well. They expect to reduce their engagement marketing spending to 10% of revenue. That is down from 49% of revenue in 2021.
Here is an example of what they are referring to. In Q1, sales and marketing expenses were $117 million but revenue was just $93.4 million. With a negative operating margin like this, there is virtually no way Skillz will be profitable unless those expenses are at least 50% of the present level.
Most investors are going to be better off waiting for Skillz to achieve some semblance of profitability or even to project that it can become profitable. That applies to it projecting an EBITDA profitability, which it still hasn’t done. The bottom line here — stay clear of SKLZ stock.
On the date of publication, Mark 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.