On Wednesday after the bell, Skillz (SKLZ) presented its best ever quarterly revenue but that wasn’t enough to stave off investors’ disappointment as the company narrowly missed the Street’s Q3 target.
The quarter’s sales came in at $102.1 million, a 70.5% improvement on the same period last year, on the back of a 47% year-over-year uptick in paying monthly active users which reached a record 510,000. However, the figure missed the consensus estimate by $0.51 million.
Furthermore, adjusted EBITDA came in at $(41.7) million, worse off than the Street’s forecast of $(36.1) million, as higher sales and marketing expenses took their toll.
While Wedbush’ Michael Pachter notes the “slightly elevated level of expense,” the analyst likes the company’s growth profile.
Pachter notes that Skillz benefited from lower cost-per-install (CPI) rates, despite the fact CPI rates were up sequentially across the industry. This was due to the scaling of new ad networks which allowed for more accurate bidding and an improved “organic traffic mix” via the optimization of its search engine and app store strategies. Over the next several quarters, as the company continues to shift user acquisition spend to the recently acquired Aarki platform, management anticipates rates will continue to drop.
The top-line growth also got a boost by roughly a 4-percentage point year-over-year increase in payer conversion rates due to the company prioritizing paying users
Taking the ong-term view, Pachter expects new game launches, entry into new subcategories within the casual genre, and the introduction of mid-core and core genres to fuel further growth.
The company also expects its total addressable market to expand with the implementation of Exit Games’ “synchronous technology.” This will enable developers in the multiplayer racing, fighting, and shooting genres to provide their mobile games via the Skillz platform.
Looking ahead, the company kept its FY21 guidance for revenue of $389 million, just below consensus and Wedbush’s expectation of $390 million.
All in all, Pachter sticks to an Outperform (i.e., Buy) rating and keeps the $25 price target as is. The implication for investors? Upside of a whopping 119% from current levels. (To watch Pachter’s track record, click here)
The Street is fairly evenly split between the bulls and the fencestitters on this one; with 4 Buys and 3 Holds, the analyst consensus rates SKLZ stock a Moderate Buy. On where the share price is heading, however, the overall outlook is more emphatic; at $18.33, the figure suggests share will add 61% of muscle over the coming months. (See Skillz 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.
