Skillz Stock: Opportunity or a Busted Growth Story?

Skillz (NYSE: SKLZ) is a mobile esports competition platform that enables anyone to participate in prizes by competing against each other across the world, making it possible for global competitions with an assortment of players.

They have been dedicated to providing a fair gaming experience for competitive players, essentially accessing an untapped mobile esports market. Currently, Skillz’s market capitalization is only $3.5 billion, which means it’s still relatively small in the esports space.

Although, there may be some potential worries for this company in the short term as the quality of its offered service is limited for new generations of players that aren’t interested in slower-paced game titles.

Recent Quarterly Results – Skillz Stock

More recently, Skillz stock has been a falling knife, which might be a bit of a shock at first, especially when you recognize the growth it had in its second-quarter revenue results of $89.5 million, resulting in a growth of 52% year over year.

Gross profit also surged in the second quarter, pushing to $85.1 million, up 52% year over year. However, when factoring in expenses in various segments of the business, the net loss was incredibly high, around $79.6 million as of the second quarter of this year.

Despite not yet being profitable, the financials of the business looks to be going in the right direction. However, this may change significantly with some other factors that are lacking in the overall business.

Is Skillz stock lacking a Competitive Advantage?

Despite the impressive growth, Skillz does lack some important fundamentals.

The games listed for competitive esports are relatively low-quality. Its service is not all that impressive as most of the games lack compelling graphics or motivation to play. Although, with that being said there are some well-known favorites on the list such as Solitaire, Pool, and Dominoes. For younger generations though, there may not be as large of an incentive as there aren’t any intriguing game titles.

Developing mobile games that are both exciting and competitive is difficult, especially because there is a wide range of hardware discrepancies on mobile, meaning that there is a limit to how large-scale game titles can be.

These games tend to be more relaxed compared to the traditional esports games you’d see on consoles such as Xbox, Playstation, and PC alternatives. On these platforms is where a majority of the capital is, hence why the esports industry tends to host more team-driven intense competitions.

Skillz stock

Wallstreet valuation implies upside of 187% despite analyst caution

Amongst a pool of Wallstreet analysts covering Skillz stock, Canaccord analyst Michael Graham currently maintains a $23 valuation. The analyst recently noted to investors that SKLZ has experienced a additional pressure from investors. Graham added that despite strong revenue growth, the company has struggled to build its monthly active users. Despite lowering the analysts target from $30, the current valuation implies an upside of 187.50%.

Final Thoughts – Skillz stock

The popularity of Skillz stock earlier this year does illustrate investor interest in the emerging mobile competitive gaming market. This emerging industry has branched off from the esports industry, which traditionally is competed over PC or console. However, the games provided for competitions are rather lacking new titles. This may allow for competitors to swoop into this industry and potentially take away a percentage of the addressable market. This in turn could lead to declining active users and consequentially less confidence from the shareholders.

Overall, the mobile gaming market is relatively new, but Skillz seem to lack competitive advantage, primarily due to lower quality accessible game titles. The gaming eco-system is vast and expanding at a rapid rate. As competition will continue to heat up, more companies will aim to provide high-quality game titles that appeal to the younger generations.

This is of significant importance for sufficient long-term growth opportunities. Nevertheless, the companies valuation on Wallstreet still remains relatively high in comparison to Skillz stock trading price. We will see over the next quarter if Skillz management can rekindle the interest in the company.

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