What happened
Shares of Skillz (SKLZ -0.97%) moved higher Monday after the mobile gaming platform operator refuted the latest report on the company from a short-seller.
The stock closed the trading session up 7.3%.
Image source: Skillz.
So what
On Friday, Restrinct called the high-growth esports company, "simply another skill-based gambling start-up," implying that Skillz has little in the way of differentiation or competitive advantages in its industry. Restrinct went on to say, "These exact, literally identical, business models have existed in the past and have largely gone defunct or failed to scale over time."
The stock barely reacted to the short report on Friday, but on Monday, Skillz dismissed it, telling real-time business news website The Fly: "The report from Restrinct contains numerous inaccuracies and misleading claims. The only new claim in this report is an erroneous calculation of our unit economics, which relies on defective math and demonstrates a fundamental misunderstanding of our business."
All this came on the heels of the strong earnings report the company delivered Wednesday, and the stock has been gaining since then. Revenue in the fourth quarter jumped 95% to $67.7 million, ahead of estimates at $62.5 million, though its net loss expanded as the company spent aggressively on sales and marketing. Management also said it anticipates 59% revenue growth this year to $366 million, in line with analysts' consensus estimates.
Now what
Restrinct was the second short-seller in less than a week to come out with an attack on Skillz. Wolfpack Research did so ahead of the earnings report. It's easy to see why shorts are piling on the stock. Skillz trades at a price-to-sales ratio of 50 based on 2020's revenue, and more than 30 based on its forecasts for 2021. The company also got 79% of its revenue from its three most-popular games last year, including Solitaire Cube, 21 Blitz, and Blackout Bingo, meaning the business could fade if those games fall out of popularity.
Still, it's hard to ignore a company with 95% revenue growth, and its recent deal with the NFL also excited investors. Given the interest from short-sellers and the high growth and valuation, Skillz should continue to be a battleground stock.
