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Why Skillz Stock Is Falling Today

By Rich Duprey – Nov 4, 2021 at 12:38PM

Key Points

  • Skillz reported third-quarter results that featured the platform's 23rd consecutive quarter of revenue growth.
  • Wall Street seems impressed with its ability to expand into new markets.
  • It still needs to prove its acquisition of Aarki can drive customer acquisition costs lower.

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The mobile esports platform still needs to convince the market it can control customer acquisition costs.

What happened

Easy come, easy go. Shares of Skillz (SKLZ 1.24%) were falling 6% in morning trading Thursday after the mobile esports platform reported third-quarter earnings that failed to impress Wall Street. 

The decline in the stock follows yesterday's 7% gain after a Citigroup analyst resumed coverage of the company. 

Friends playing video games

Image source: Getty Images.

So what

Despite Skillz notching its 23rd consecutive quarter of revenue growth (sales rose 70% from the year-ago period to $102.1 million), questions remain about whether it can leverage its acquisition of Aarki, a global demand-side advertising platform that reaches 465 million people, to help reduce customer acquisition costs.

Skillz stock has been battered by rising member-acquisition expenses, but because Aarki expands the universe of players Skillz can reach, it expects the business to reduce those costs over time. Moreover, management has said the long-term value Skillz derives from members outpaces those costs fourfold. It might pay up initially, in other words, but ultimately should make it back and then some over time. 

Now what

But Canaccord Genuity analyst Michael Graham, while saying Skillz is making good progress on expanding into new content markets, wants to see proof that the mobile esports platform can deliver on lowering costs. Although he kept his Skillz stock recommendation as a buy, he lowered the price target from $23 to $18 per share.

Even though Skillz shares are down heading into midday trading today, the stock has pared losses after it opened down more than 13%. As the day progresses, it's possible the market will take a brighter view of the video game stock's report.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Duprey 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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