What Happened to Skillz Stock?
- Shares of mobile video game technology company Skillz (NYSE:SKLZ) have been under significant pressure in recent months. SKLZ stock — once a darling on Wall Street for its long-term potential in creating the technology to pioneer a new era of mobile esports — has dropped more than 60% off its early February highs.
Why Did It Happen?
- This drop can be chalked up to two things. One, a sharp rise in Treasury yields sparked by inflation fears has disproportionately impacted growth stocks like SKLZ, as it has made growth more expensive to fund and diluted the present value of future cash flows. Two, app download data from Skillz’s most popular games has plunged in 2021, likely as increased access to sports betting has created competition for mobile esports titles.
- Specifically, our analysis from AppAnnie data suggests Solitaire Cube’s app download rank among games in the U.S. has dropped from 250 in January 2021 to 550 in April 2021. Similar huge drops have happened to Skillz’s other most popular games, such as Blackout Bingo 50, 21 Blitz 800, Pool Payday, and Dominoes Gold.
Does It Matter?
- Weak app download data is never good. But our analysis suggests that the bulk of these big drops happened in February and March. Yet, at the end of March, Skillz pre-reported above consensus first-quarter revenue numbers.
- In other words, weak download data didn’t stop Skillz from topping estimates and continuing on its hypergrowth trajectory.
- This is likely because Skillz launched multiple new games in the quarter — like Baseball Batting Champion and Fishing Tap Blitz — that are performing quite well. These new games are offsetting weakness in Skillz’s traditionally most popular titles, and overall download volume appears to have rose strongly in Q1.
- Skillz also appears to be more robustly monetizing its core audience. First quarter ARPU (defined here as total revenue divided by ending MAU count) is projected at $30. In 2020, it was just $22.
- Meanwhile, Treasury yields have started to calm down even after a strong inflation reading from March’s CPI report. It appears the worst of the “yield surge” is over.
SKLZ Stock Forecast
- Recent weakness in SKLZ stock is overdone. At $16 and change, shares are dramatically undervalued relative to the company’s huge long-term growth potential.
- The consensus price target on Wall Street for Skillz stock is over $30. We suspect shares will shoot toward that level over the next few months, as yields calm down and Skillz continues to report strong fundamental results.
SKLZ stock is a great long-term holding. But it is just one stock of many which we feel represents a new wave of technology disruptors positioned to massively change the way the world plays, travels, and works over the next decade.
The world’s entertainment services are being digitized at a pace that’s accelerating, as globalization and technological convenience converge to create a more tech-centric society.
My top hypergrowth stocks in this megatrend include companies from social media, advertising, streaming TV and iGaming.
Get my complete list of stocks to buy in Digitainment by subscribing to Innovation Investor today.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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