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Misunderstood because investors think it's a video game company, when in fact it's much more than that. It is also an enterprise software company…
(wow) Words Of Wonders Level 2728 Answers
Undervalued because investors think that the company will run out of money and price it close to the cash level. But an analysis of its expenses, along with the operational statements the company made during its recent earnings announcement and Investor Day call, suggests otherwise.
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Skillz has had a painful decline, culminating in a dramatic drop the day after it reported earnings in Q4 2021, falling just under 20%, but at one point hit a 40% shellacking.
Of course, it wasn't just SKLZ who felt the pain. The entire market is bearish, and the Nasdaq is entering bearish territory in early March. Gone are the days of easy money, where the market richly rewarded “growth at any price.” As long as you went up, your stock kept going up and if you ran out of money, you just made a secondary offering at high prices for your stock and, voila, the market gave you more money.
Reduction of liquidity in the market; or maybe it was the rising deficits and oil and inflation and interest; or perhaps the bombs falling on Ukraine and Russia receiving sanctions will inevitably send ripples through the global economy, but the market
The market doesn't think so right now, but Skillz is one company that has what it takes to survive…
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Most investors think of Skillz as a video game company and they have a few internal games, but they are much more than that. Their primary focus is to deliver
A scalable enterprise gaming platform—one that processes billions of games per year—goes far beyond just making games. High barriers to entry here.
Additionally, the business gaming platform they built has an innovative business model. Advertising networks have created a huge digital ad arbitrage industry between the buyer and seller of digital ads. Similarly, Skillz acts as
Each other … with Skills acting as the “house” … a.k.a., the “bookie”. And as it turns out, there are more advantages to bet on this market than meets the eye. Imagine a business software company that
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For example, you may be familiar with the sensational new game called Wordle. It didn't exist a few months ago. But now there is
This shouldn't be a surprise though, hit video games are being made all the time. But when was the last time a new physical sport was created that you could bet on? Not for a while. Skillz is the only bet in town that has the potential to capitalize
One of the two most important statements in Skillz's last call was not when the company said it had a lot of money in the bank (almost three quarters of a billion dollars gross); or solid revenue, nearly $109 million for the quarter, up 61% from last year; or 610,000 paying players, an increase of 56% over last year.
Andrew Paradise, chief executive, attributed this to shareholders. It can be. But we all also know that it was quite difficult not to listen to the market
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But can they really turn a penny? Business leaders know they can. Because unlike costs of employees, facilities or equipment – areas that are difficult to cut and take time to save – 73% of their costs in 2021 will be attributed to “sales and marketing” … and most of these costs are
For the quarter. Knowing that most of this spending was inefficient and is now shrinking, imagine what revenue in the fourth quarter might look like if it started shrinking in the last quarter. Earnings would not be affected much, but instead of a loss of ($0.25) per share – with an expectation of ($0.10) – it could have been $0.10
The net loss would look very different if the inefficient acquisition costs were not part of the sales and marketing expense line. (Source: Skillz K4 2021 Earnings Press Release)
Since Chafkin also confirmed in the Investor Day Q&A that the actual reduction began in early February, we could now see savings of up to $40 million, or up to $0.10 per share.
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And in Q1 2022 results. This would be a nice surprise for stocks that could use a nice surprise.
Winning combination: Mobile football betting and games. (Source: Actual screenshots of one of the new NFL games enabled for betting through Skillz.)
It's no secret that people like to bet on football. It's also no secret that people like to play soccer video games like Madden. With the help of this, SKLZ has collaborated with none other than
I know many have reported on this strategic partnership, but not in this way: that this is it
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(Hot-Off-The-Presses: Skillz is offering a sneak peek of all its NFL-branded games at the 36th Annual Game Developers Conference March 23-25. Just a heads-up for those who might not believe this is real are. )
Thinking about SKLZ as a bookmaker invites new valuation comparisons. One of the monster sportsbooks is DraftKings (DKNG). Both DraftKings and Skillz are online sportsbooks. But one takes the book for physical world games, the other for digital games. And while DKNG has about 3k in revenue – and only about 2k in cash –
Given that DKNG has more than 3x analyst coverage, it is more likely that they are better understood and that SKLZ's valuation is halved. But I don't think this is a fair comparison because Skillz has material advantages over DraftKings. DKNG has limited game content in the physical world that they can monetize, while SKLZ does practically
Their market. A great – and rare – business advantage. So comparing SKLZ to DKNG may provide an initial valuation adjustment, but the more you dig into the details of the company, the better SKLZ looks. Translation: SKLZ
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Skillz reduced revenue in 2022 from $550 million to $400 million. However, it seems to me that they were
And, according to the conference call, they are working on improving the existing player environment and social features. That's what the company is talking about
One of the domain experts in this space: Aarki, so it is quite conservative to project a small 10-15% increase in ARPPU (average revenue per playing user). This would increase revenue to approximately $480 million to $500 million.
Include new upcoming NFL games. We can use existing data to help us project future potential here. Just three games account for almost 80% of SKLZ's revenue in early 2021, or almost an average of 27% each. It is important to note that these games work
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They have household brand names…just like the NFL does. So it's not unreasonable to catch SKLZ's NFL games
Similar average acceptance within the Skillz player base. As such, and in about half a year of contributions, NFL video game betting could add another 10%-15% to the top line, pushing potential revenue in 2022 into the $525-565 million range. Right back to the first review, huh?
The NFL has a really BIG megaphone, so of course Skillz will see new players…in fact the numbers could be much higher. What I think the above analysis says, however, even looking at it fairly conservatively, their revenue in 2022 could be closer to $550 million than $400 million. Which of course no one expects now.
Several analysts lowered their price targets for SKLZ after its earnings call. The lowest price of the shares of $ 2.50. My range is $9.00-$12.00. This may be disappointing for those who bought at the higher levels, but please know that I think this is more than the next six months, so SKLZ will go higher if the company continues to prove it can execute on its new path . And, at least in the short term, it's a wonderful opportunity for everyone. I arrive at my range by adjusting SKLZ's sales multiple to DKNG, increasing by 50% to reflect my higher earnings estimate for 2022, and noting that SKLZ's short percentage of around 20% is frighteningly high…which inevitably means that it will be overrun as everyone runs for cover.
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I think Skillz got their customer acquisition strategy wrong. I believe that it would be more effective if they spent less time trying to win over individual players and
I know many investors may want me to argue that Skillz's recent $300 million debt financing was also a mistake. After all, it was filmed in
10.25% rate. But with the secondary market now closed, it seems more like management didn't have much foresight to clear some extra $. With rising interest rates, who knows, we might look back and think that money wasn't so expensive after all. Don't forget, with the way the company works now, only they can
Churn always worries me. It is usually bigger for non-betting app games, but smaller for betting games like casino slots and the like.
