Shares of Skillz (SKLZ -3.78%) rose 14.4% in February, according to data provided by S&P Global Market Intelligence. All of these gains came early in the month after the company announced a multi-year agreement with the NFL.
Since Skillz only went public in December, I'll briefly explain what it does. Its platform relies on other companies to develop and launch skills-based video games. There are pay-to-play games, from which Skillz gets a cut, the video game developer gets a cut, and gamers can earn a cash prize. However, this company is still a long way off from widespread adoption and it relies on a small number of popular games to create the lion's share of user engagement.
Skillz's business would improve with a greater diversity of hit games. That's what makes its deal with the NFL so exciting. The two entities are launching a challenge to developers to create mobile games based on football. If any of these are a hit, it would go a long way in furthering the adoption of Skillz's platform.
While the NFL deal is very good news in my opinion, investors need to be sure they're ready to play the long game with this stock. For example, the NFL challenge has been announced, but it doesn't launch until the second quarter. Therefore, it could still be a long time before Skillz's users are playing NFL mobile games on the platform.
Trading at over 60 times trailing sales, Skillz stock is very pricey. So it will take a long time to grow into this valuation. It very well may succeed in the long run -- hopefully this NFL deal is one of many to come. But investors will likely need to endure ups and downs over the next several years as the story plays out.