Skillz (SKLZ) is the first publicly traded mobile phone gaming platform. Supported by most Android and iOS phones, Skillz enables its users to play fun, competitive games against each other and even win real cash prizes. With headquarters in San Francisco and patented technology, this gaming platform is expected to change the future of esports.
The company has been able to bridge a gap in mobile gaming, recruiting developers to create games on the Skillz platform, along with gamers themselves to actually play. Among all gamers, 23% play on their phones, and estimates rate the mobile gaming industry as worth close to $100 billion. (See Skillz stock charts on TipRanks)
Its age inclusivity and cash prizes have helped the company build a strong presence in the market, and the 63 minutes players on Skillz average per day is twice the industry engagement average. Skillz also earned $608.5 million in contest entry fees in Q2 2021, a 47% increase from the year prior.
Yet, SKLZ shares have fallen by 55% since the beginning of Q3 2021, despite the aforementioned revenue growth. The company reported a net loss of $79.6 million in Q2 2021, $59.4 million worse than the previous year. A significant portion of the loss resulted from higher operating expenses, which came in at $139.5 million, compared to $71.5 million a year ago.
Valuation Metrics
The company’s valuation is quite rich at the moment, as Skillz is not yet profitable, even on an EBITDA basis. That said, the EV to revenue ratio is a respectable 14.09, especially when you consider that gross margin came in at 95% for the quarter. Additionally, EBITDA margins are expected to improve to 12.7% in 2022 from a negative percentage of 33.7 in 2021, indicating that the company is making rapid progress towards profitability.
Wall Street’s Take
From Wall Street analysts, Skillz earns a Moderate Buy consensus rating, based on four Buy ratings, and two Hold ratings in the past three months. Additionally, the average SKLZ price target of $19.67 puts the upside potential at 63.2%.
Summary and Conclusions
Skillz is enjoying rapid revenue growth, thanks to its innovative gaming platform and lengthy growth runway.
That said, despite general Wall Street bullishness on the stock at current prices and the robust growth outlook, investors should keep in mind that the current valuation does require significant growth for the foreseeable future to be justified, making the stock somewhat speculative. As a result, any position taken in the stock should be sized accordingly.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
