Skillz (NYSE:SKLZ) is an action that we love or hate. A young speculator may love SKLZ stock for the story, for its Q1 report, or for the fact that Cathie Wood’s ARK Innovation ETF (NYSEARCA:ARKK) has been loaded on it.
They might also hate Skillz for his story, the flaws in that Q1 report, or the bears that bet against him.
It’s a classic Wall Street story in which the fundamentals are lost behind a whirlwind of blind bets, claims and counterclaims.
I will not play this game. I am an aging baby boomer concerned with preservation of capital. The question is, could I recommend it to my 30 year old or me to 20?
Small investors lowered SKLZ stock
Skillz is a gaming platform. it leaves developers create online card games, board games, shooting games and adventure games. The idea is that companies can “gamify” any intellectual property, put it on an online platform, and make money from it with cash prizes and entry fees.
The company became controversial after the acquisition of Flying Eagle, which had previously taken DraftKings (NASDAQ:DKNG) public, made SKLZ its second SPAC target in September. The deal, reached in December, brought Skillz ‘ cash balance over $ 600 million by March. It burned $ 53 million in the quarter while growing revenue 81% year-over-year.
Before the numbers were released on May 4, however, SKLZ stock had already taken small investors for a ride. The shares hit nearly $ 44 in mid-February and then crashed into Earth. On June 1, they opened at about $ 17.40, a market cap of $ 6.7 billion on a revenue rate of $ 320 million per year.
Cathie Wood ignored the bears
The fall came as a result of reports of short sellers. WolfPack Research called Skillz’s alleged partnership with the National Football League (NFL) a pumping and emptying system. Eagle Eye Research called Skillz ‘ financial report in question.
Meanwhile, Wood saw SKLZ’s stock plummet and threw himself on it. That was enough for our Will Ashworth to recommend Skillz a few weeks ago. Stocks rebounded to a low of $ 13 and have held steady ever since. Ashworth’s timing looks good.
Our Luke Lango also recommended the SKLZ stock following the March quarterly earnings report. As well as being of interest to the NFL, the company is also growing in India, he wrote. He likes the concept of real money mobile eSports and believes the stock will rebound quickly. Thomas Niel also believes the bull’s case still stands, that the criticisms are overblown and that Wood from Ark Investments is playing that right.
The bottom line
A friend who got into esports over a decade ago showed me that sports franchises are often run by stupid, lazy people who expect effortless money. Unless there was someone inside the NFL working hard on this, I wouldn’t expect anything to come out of it. Skillz’s previous deals with basketball teams didn’t ring the cash register or do much for SKLZ stock.
Skillz is a young man’s game, a young man’s business, and a young man’s stock. It is built on the same foundation as DraftKings, which is that young men like to spend their money. I find that questionable.
Other Investor place colleagues, including Tezcan Gegcil and Josh Enomoto, have looked at these March numbers and advised investors not to react. I also wouldn’t pay 20 times the expected income for anything.
But if you’re a young speculator, and you’ve tried some of the games, seen how they work, and got value out of them, you can grab a flyer on it.
At the time of publication, Dana Blankenhorn had (directly or indirectly) no position in any of the titles mentioned in this article. The views expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Dana blankenhorn has been a financial and technology journalist since 1978. He is the author of Big Bang of Technology: Yesterday, Today and Tomorrow with Moore’s Law, available from the Amazon Kindle store. Write to him at [email protected], tweet it on @danablankenhorn, or subscribe to his Sub-stack bulletin.