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Why Skillz Stock Dropped Wednesday

By Howard Smith - May 5, 2021 at 4:03PM

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The company reported strong revenue growth, but costs are rising too.

What happened

Mobile video-game platform Skillz (SKLZ 8.59%) reported its first-quarter 2021 results last night, and it was a bit of a mixed bag for investors. As of 3:10 p.m. EDT, shares were trading down about 10%, at the lows of the day.

So what 

On the positive side, Skillz reported record revenue that grew 92% over the year-ago quarter. And the company hit a strong 17% conversion to paying monthly active users ratio, which the company says is eight times higher than the average in the mobile gaming industry. The company did report a net loss of $0.15 per share, however, which was worse than analysts expected. By comparison, the company reported a net loss of $0.06 in the prior-year period. 

Three young friends excitedly playing mobile video games.

Image source: Getty Images.

Also yesterday, Skillz announced that its chief financial officer is being replaced as of June 21, 2021. Some of today's negative sentiment may be related to that CFO change as investors sometimes get uneasy hearing that kind of news.

Now what

Not everyone is selling shares on yesterday's news. Popular investor Cathie Wood has added to her funds' holdings after the report. But while the revenue growth is impressive, Skillz spent more than $96 million on sales and marketing to acquire new customers. That's a 106% increase in spending, meaning it's costing more than the current revenue it's bringing in. 

Investors who believe in the long-term story don't have any reason to make a change after this financial report. But it is another data point to monitor along the way to see if the company can profitably grow in the future.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Skillz Inc. The Motley Fool has a disclosure policy.

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