Mobile gaming monetization platform Skillz (SKLZ 2.39%) recently announced a new compensation agreement for its founder and CEO, Andrew Paradise. The agreement aligns the financial compensation for Paradise with the financial gain of shareholders through the appreciation of company stock.
Stock-based compensation could be a sign that the CEO of Skillz is confident in the company's ability to execute moving forward. Below are details on the compensation package and why Paradise could be expecting the stock to soar in the future.
Breaking down the compensation package
Stock-based compensation is a useful tool to incentivize company leaders in a way that aligns management and shareholder interests. In other words, it's a "carrot" dangling in front of a company's leadership, saying, "If you make the business worth more, everyone benefits."
Image source: Getty Images.
A great example of this is Tesla's massive $56 billion compensation package that awards CEO Elon Musk shares of stock as the company increases in value. Skillz has taken a page out of Tesla's book, awarding Paradise a similar package.
Under the terms of its "2021 grant," Paradise will be awarded shares of Skillz based on future increases in the stock's market cap. These include
| Cumulative Number of Shares Awarded | Market Cap Milestone |
|---|---|
| 4,029,885 | 2.0X |
| 8,059,770 | 3.0X |
| 12,089,655 | 4.0X |
| 16,119,540 | 5.0X |
Data source: Skillz.
The package uses a baseline market cap of $4.7 billion, so when the stock achieves a sustained market cap of $9.4 billion ($4.7 billion baseline x 2.0 milestone), the company will award Paradise 4,029,885 shares of stock. For Paradise to receive all of the potential shares from the grant, the market cap would need to reach $23.5 billion, roughly a five times increase from the current share price.
Tying compensation to increasing the company's value could signify that Paradise is confident that the company will perform moving forward; otherwise, why would he do it? We all want to get paid!
Progress in long-term catalysts
So how is Skillz going to grow moving forward? The business is in the process of evolving beyond the casual games that dominated its platform when it came public. Examples of this are games like solitaire, blackjack, and bubble shooter.
The company has begun partnering with brands to lure new and better game developers into making games for its platform. Its most significant victory to date has been its partnership with the National Football League (NFL) to launch a developer challenge that will see NFL-themed games launch on Skillz's platform. The challenge is currently in the semi-finals, with 14 studios remaining. Skillz and the NFL hope to launch the winning game(s) in time for the beginning of the 2022 NFL season.
Skillz is also expanding into new game genres, such as first-person shooters, battle royale, and combat. It partnered with Exit Games, a company that owns a multi-player gaming technology that will enable developers to create and launch real-time games on the Skillz platform easily. The ability to support real-time games will help bring these more popular game categories to the Skillz platform.
Lastly, Skillz has maintained that it's on schedule to launch in India by the end of 2021, its first notable international effort. There are more mobile gamers in India than the total United States population, so Skillz has a significant opportunity to pick up new users from India over the coming years.
Several games with solid momentum
Skillz is a platform business, so it will benefit as more games launch on it and become popular. Since going public in December 2020, Skillz has announced some new games that are beginning to show popularity, appearing on the "top charts" on the Apple App Store.
Some of these newer and existing titles include:
- Blackout Bingo (existing): #2 in casino
- Big Buck Hunter (new): #4 in sports
- Solitaire Cube (existing): #17 in card
- Pool Pay Day (existing): #7 in casino
- 21 Blitz (existing): #30 in casino
- Trivia Crack (new): #134 in trivia
These new games are significant because, in many cases, they are in "soft launch" and not fully rolled out and marketed yet. Management also excludes revenue from new games from guidance, so a new hit like Big Buck Hunter could potentially add upside to revenue growth.
The stock's valuation could be a great entry point
The stock trades near its lowest price since going public. The current $4.5 billion market cap leaves a lot of upside for long-term investors, should Paradise successfully guide the company to growth moving forward.
Revenue guidance for the entire 2021 year is $389 million, a 69% increase over 2020. Its price-to-sales ratio is 11.5, a reasonable valuation considering Skillz's strong revenue growth. As the business grows, I wouldn't be surprised to see the share price follow the business higher because the stock is starting at a modest valuation. It's now up to Paradise to grow Skillz and put cash in investors' pockets, as well as his own.
