Growth stocks have taken a beating recently, with many previous high-flyers lying face down on the proverbial blood-splattered Wall Street. Skillz (SKLZ) hasn’t been spared; the stock’s one month performance shows a 35% drop. The mobile gaming platform’s case wasn’t helped either by a recent scathing short-seller report, which said the company’s games are underperforming and its revenue forecasts are out of whack.
However, heading into today’s 4Q20 earnings, Wedbush analyst Michael Pachter takes the opposite view.
“We expect strong top-line growth for years to come as Skillz further penetrates the addressable market of gamers willing to enter pay-for-prizes tournaments,” Pachter said.
The analyst expects Skillz to deliver Q4 revenue and adjusted EBITDA of $62.6 million and -$24 million, respectively, compared to the consensus estimates of $62.5 million and -$23.0 million. Skillz’ FY20 estimates also imply quarterly revenue of $62.6 million.
For FY21, according to Skillz’ September quarter outlook, the company is anticipating revenue and adjusted EBITDA of $366 million and -$14 million. Pachter expects Skillz to provide a higher revenue estimate in the earnings call but believes the revised adjusted EBITDA target “could be below FY:20.”
Moving forward, it is the potential for future growth via the company’s “unique business model,” of paid entry fee gaming competitions, which excites Pachter the most. “The number of spenders is a small fraction of estimated 3.5 billion mobile gamers around the globe.”
The MAU (monthly active users) and ARPU (average revenue per user) numbers for Q3 were much higher those displayed in the same period the previous year, underscoring Skillz’ opportunity to “outperform in the future as these figures climb, helped by its Android, new game genre, and international efforts.”
While Pachter notes the possible headwind of further rotation out of “SIP (shelter in place) winners,” the analyst points to the recent first-person shooter partnership with Play Mechanix and the NFL agreement to host a worldwide game developer challenge, which could “highlight its growth potential to investors.”
All in all, ahead of the print, Pachter rates SKLZ shares an Outperform (i.e. Buy) along with a $34 price target. Should the target be met, investors could pocket gains of ~33% over the next 12 months. (To watch Pachter’s track record, click here)
So, that’s the Wedbush view, but what does the rest of the Street have in mind for SKLZ? The stock has a Moderate Buy consensus rating, based on 4 Buys and 2 Holds. The forecast is for ~19% upside over the next 12 months, given the average price target currently stands at $30.5. (See SKLZ stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
