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Skillz: Loss of High-Growth Disruptor Narrative Merits a Lower Price Target
Stock Analysis & Ideas

Skillz: Loss of High-Growth Disruptor Narrative Merits a Lower Price Target

For Skillz’ (SKLZ) investors following Wall Street analysts’ opinions, the latest thoughts expressed by Wells Fargo’s Brian Fitzgerald when considering the company’s prospects will be especially dispiriting.

“We don’t see a bull case for SKLZ at current valuations in light of (1) flattish/down player base in Q2, and (2) catalysts that are too far off to excite investors now,” the 5-star analyst said following the mobile gaming platform’s decidedly mixed Q2 results.

The analyst’s take on Skillz posits the company between a rock and a hard place. Fitzgerald applauds Skillz’ financial discipline regarding UA (user acquisition) which will add “longevity to the organization.” But at the same time, the company’s decision not to charge ahead with the accumulation of new users also changes the analyst’s interpretation of the “high-growth disruptor” narrative Fitzgerald had laid out for Skillz.

In the company’s latest quarterly results, paying MAUs (monthly average users) remained flat sequentially, and MAUs were down from the previous quarter, “despite a 15% reduction on user acquisition ($47 million), suggesting that churn is indeed an issue for the user base.”

That said, it’s not all doom and gloom. Fitzgerald says Skillz remains a “multisided platform.” However, the prospects of a “’tipping point,’ whereby a “sustainable virtuous cycle between players, developers, and advertisers,” would put into action a network effect needed to spread the word is “further away” than Fitzgerald had previously thought.

Fitzgerald still thinks Skillz “deserves a higher multiple” than mobile video game publishers. But the longer it takes for the number of hit titles on the platform “to inflect,” comparisons to publishers who also exert UA discipline on “highly concentrated portfolios in a multi-studio structure,” will only continue to grow.

Accordingly, Fitzgerald lowered the price target from $18 to $15, yet the figure still represents possible upside of ~24% from current levels. The analyst’s Equal Weight (i.e., Hold) rating remains as is. (To watch Fitzgerald’s track record, click here)

Looking at the consensus breakdown, 1 other analyst remains on the sidelines while 4 others suggest to Buy, culminating in the stock’s Moderate Buy consensus rating. Skillz stock has taken a beating this year, but the analysts expect the shares to move higher again; the average price target stands at $19.67, suggesting 12-month gains of ~63%. (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.

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