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Why Skillz Slumped on Thursday

By Eric Volkman - Jun 3, 2021 at 5:50PM

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It had basically nothing to do with the company's fundamentals.

What happened

A day after rising stratospherically, Skillz (SKLZ 7.34%) stock obeyed gravity. At one point on Thursday the stock was down nearly 11%; it ultimately recovered, but still closed the day in negative territory with a 1.5% drop.

So what

That came a day after Skillz announced a sensible and inexpensive acquisition, that of Silicon Valley-based mobile ad specialist Aarki for $150 million in cash and stock. That, combined with a potential short squeeze in the stock, catapulted Skillz shares high in the air on Wednesday.

Young person clad in headphones excitedly using a smartphone.

Image source: Getty Images.

So Thursday's dips look like retrenchments and/or profit-taking. Aarki should end up as a complementary asset that streamlines its new owner's business and saves on costs, but the deal isn't that exciting and the company likely won't be (sorry) a major game-changer for Skillz.

The contrast between Wednesday's bull stampede and Thursday's bear scratch also suggests that there might not be a short squeeze in play after all -- at least, not a sustained one. 

Now what

Spurts of interest in new(ish) and young(ish) stocks are not unusual, particularly in the tech universe. At times, certain developments -- like the Aarki deal, or a meaty short-interest figure -- can get blown out of proportion by investors with itchy trigger fingers.

Regardless, Skillz remains a company to watch. Revenue is growing sharply and the company operates in a mobile segment that is nowhere near mature, so it has real potential. Skillz bulls should ignore the noise and stay focused on the company's fundamentals.

Eric Volkman 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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