Shares of video game platform Skillz (SKLZ -6.04%) skyrocketed Thursday after the company announced it had gained a new partner with enormous brand recognition. The NFL wants to grow its audience among gamers on mobile devices, and it believes Skillz is the right platform to accomplish its goal. With this fresh vote of confidence, Skillz stock was up 18% as of 10 a.m. EST.
Skillz is merely a software platform. Third-party developers create games to be played on Skillz. And gamers enjoy the chance to compete for cash prizes. Its user engagement is impressive -- gamers log an average of 62 minutes daily on the Skillz platform. However, the company has an urgent need for new games. According to the company, just three games (Solitaire Cube, 21 Blitz, and Blackout Bingo) accounted for 79% of revenue for the first three quarters of 2020.
I don't believe this point can be overstated. Having that much revenue come from just three games is a big risk for Skillz. After all, if it fails to replace popular games as interest fades, then its user engagement could tank. That's why signing a deal with the NFL is so important. It offers the opportunity to diversify revenue to a broader base of games.
Skillz shareholders should keep in mind that this news won't immediately help the business. The two companies have simply issued the challenge to game developers. But these third-party studios will still have to go through the process of creating skills-based games based on the popular sport. There's no telling how long it will take to finally see an NFL game launch on Skillz. However, for now, it's good news that it's at least started the process.