Skillz (SKLZ) provides an online ecosystem in which video-game players can compete in tournaments.
I am cautiously bullish on SKLZ stock. (See Analysts’ Top Stocks on TipRanks)
If you’re not a gamer yourself, then you might not be aware of Skillz’s massive presence in the gaming world. The company hosts 2 billion tournaments annually, thereby fulfilling a need for human connection among gamers worldwide.
The user engagement with the Skillz platform is off the charts. In 2020, the typical paying user spent a full hour per day on the platform, beating the figures for TikTok (52 minutes per day) and YouTube (42 minutes per day).
Yet, SKLZ stock has been down in the dumps lately. What gives? Can the bulls make a comeback soon?
A Quick Look at SKLZ Stock
2021 started off with a bang for SKLZ shareholders, as the share price zoomed from $18.20 to a 52-week high of $46.30.
Chasing the stock over $40, however, didn’t turn out to be a profitable strategy. By the summer, SKLZ’s stock price was cut in half, and in mid-October, it fell below the key $10 level.
As we’ll discuss, Wall Street expects significantly higher prices for SKLZ stock, even to the point where investors could potentially double their money.
For the time being, though, the sentiment is bearish among traders. However, perhaps there’s a bargain here that just isn’t being recognized.
Leave Assumptions at the Door
Here’s something you probably didn’t expect. According to Skillz, the company’s target demographic is 57% female and 43% male.
Moreover, Skillz envisions its target market as only being 10% in the 18-to-25 age category. Meanwhile, the 26-to-35, 36-to-45, and 46-to-55 categories each comprise 22% or 23%.
Thus, if you had a preconceived notion that video game tournament players are all teenage or college-age young men, it’s time to revise your assumptions.
Gaming is for everyone, and it’s not just about winning. Skillz provides something that has been badly needed during the COVID-19 pandemic: meaningful interaction and human connection.
The old business models in the gaming community were based on monetizing the games at all costs – and that’s been costly to the game developers as well as the players.
In contrast, Skillz emphasizes community, inclusion, and fun. Skillz hosts many charity events and provides outstanding customer support to all stakeholders.
Connecting and Monetizing
Skillz has built a loyal base of users and developers due to its people-centered business model.
The billion-dollar question is: has Skillz been able to monetize even as the platform connects people through healthy competition?
The answer is yes and no. In the positive column, we can cite Skillz’s 52% year-over-year revenue growth during the second quarter of 2021. In fact, its revenue of $89.5 million in Q2 represents a quarterly record for Skillz.
The company’s balance sheet, furthermore, seems to be rock solid, with $692.8 million in cash and no debt at the end of Q2.
Here’s where things get sketchy. In that same quarter, Skillz reported a net loss of $79.6 million. That’s significantly worse than the $20.2 million net loss from the prior year’s quarter.
What the stakeholders should want to see in the upcoming quarters, therefore, is an improvement in Skillz’s bottom-line results. Monetizing the gaming community is one thing, but turning the revenues into profits is a different story entirely.
Wall Street’s Take
According to TipRanks’ consensus rating, Skillz is a Moderate Buy, based on three Buy ratings and two Hold ratings. The average Skillz price target is $19, implying 108.1% upside potential.
The Takeaway
Skillz is taking a human-centered approach to video-game tournaments, and that’s commendable.
Yet, its stock has been beaten down lately. It’s possible that traders don’t acknowledge the size of the Skillz community, or how Skillz generates robust revenues.
Just be sure to keep an eye out for Skillz’s bottom-line results. If those results show improvement in the coming quarters, SKLZ stock could potentially double from its current price.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
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