It's been an adventurous first few months of public trading for Skillz (SKLZ 1.17%). The mobile esports platform hit the market as a trendy special purpose acquisition company -- or SPAC -- deal late last year.
The game was afoot in early September after announcing that it would be joining forces with First Eagle Acquisition to go public via the SPAC route. By the time it officially hit the market after the combination was finalized in mid-December, the first trade crossed the wires at $17.89.
The last five months have been pretty wild for Skillz investors. The stock has traded as high as $46.30 in February, only to shed most of its value when it bottomed out at $12.40 in April.
Skillz stock is clearly volatile, but is it a millionaire maker at this point? Let's take a closer look at this fast-growing player in the casual-gaming market.
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Skillz set
The Skillz business model is compelling, giving developers of casual games a new revenue stream to consider in monetizing their diversions. Publishers and developers of mobile games typically have to strike the right balance of charging upfront for a new app or cashing in on display ads or introducing premium-priced virtual goodies that enhance the gameplay.
Skillz comes in with a different possibility, offering contests and tournaments with cash prizes to woo gamers. It's resonating with gamers and developers alike if we go by recent growth rates. Revenue soared 92% last year after a 136% pop in 2019. It matched last-year's increase by clocking in with a 92% top-line surge in the first-quarter report that it posted earlier this month.
Growth should slow from here, but it's a movable ceiling. Skillz was initially targeting 59% in revenue growth for all of 2021, but earlier this month, that guidance was bumped to a 63% increase.
Developers are flocking to Skillz as a way to boost engagement, even if it comes at the expense of offering cash prizes. Monthly active users have only grown from 2.6 million to 2.7 million over the past year, but the smaller subset of those gamers paying to play have soared 81% to 467,000. Having just 17% of a mobile gamer base paying to play may not seem very exciting, but Skillz points out that that it's eight times better than the industry average.
There have been knocks on Skillz. You don't liquidate roughly two thirds of your stock's value in three months without some bear growling. One noted worrywart is calling out the revenue-recognition practices at Skillz. There's also the issue with red ink. Losses are natural in this stage of a company's growth cycle, but Skillz has posted larger-than-expected deficits in its two quarters as a public company.
The sharp recent correction has all the makings of a buying opportunity. Skillz offers a win-win proposition where developers generate engaged traffic and mainstream players get a shot at tournament prizes that are typically reserved for a tiny sliver of diehard pro gamers playing more prolific games.
Outside of the widening deficits, the trends are moving in Skillz' favor. The company may be out of favor right now, but it could definitely be a millionaire-maker stock.
