Mobile gaming platform Skillz (SKLZ -3.71%) is acquiring Aarki, a demand-side advertising company, for $150 million. The deal was announced on Wednesday morning and was followed by a conference call with additional details. Skillz will pay 60% in cash, which equates to $90 million. The remaining 40% will be financed with roughly 4 million shares of Skillz stock.
The acquisition is expected to close in the third quarter of 2021 and will add to Skillz's revenue. Management will soon release updated financial guidance to reflect this.
Aarki is expected to generate $30 million in revenue in 2021. So Skillz is acquiring the company at a reasonable forward price-to-sales multiple of five. But the company isn't acquiring Aarki simply because it's reasonably priced. Rather, it believes it can better serve game developers by improving its user-acquisition process.
Skillz also believes the acquisition can improve its cost structure. The company has spent $164 million in user-acquisition marketing over the past four quarters. But many of its demand-side advertising partners have robust profit margins. By acquiring its own ad-tech company, Skillz hopes to cut out the middle party and make these marketing dollars stretch further.
Finally, Aarki has an international presence, which is something Skillz has set its sights on. For example, the company intends to launch its gaming platform in India before the end of this year. As of the first quarter of 2021, over 90% of Skillz's revenue was generated in the U.S., so it will lean on Aarki's experience internationally as it expands globally in coming years.