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Why Skillz Rose More Than 10% This Week

By Billy Duberstein – Dec 10, 2021 at 9:34AM

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The mobile e-sports platform rose as tech stocks bounced off of a months-long downturn.

What happened

Shares of video game platform Skillz (SKLZ 0.58%) rose this week, up 15.1% at its weekly high, before retracing back to a 9.1% gain for the week as of today, Dec. 10, at 2 p.m. ET.

There wasn't any clear reason for Skillz's rise other than the fact that it had been beaten down pretty severely heading into the week, as was the case for many tech stocks. Perhaps receding Omicron fears boosted sentiment for growth, although it still appears as though the Federal Reserve may tighten financial conditions more quickly.

Three young men pump fists as they look at something on a smartphone.

Image source: Getty Images.

So what

During November, Skillz reported some strong earnings, but even 70% revenue growth wasn't enough to match analyst expectations. Additionally, the company's chief technology officer departed the company after many years due to personal reasons. At the same time, fears over quicker-than-expected interest-rate hikes next year hurt all high-multiple growth stocks, and Skillz is definitely that. So, this week's bounce probably had more to do with a relief bounce from a 17% decline in November.

However, this week did have two events that may have moved the needle. CEO Andrew Paradise appeared at Wedbush's Winter Games analyst event where he explained Skillz's competitive advantages, data-science focus, and market outlook. That could have driven some optimism.

Skillz also announced its intention to sell $300 million in debt that it will use for general corporate purposes and potentially new acquisitions. Skillz is relatively small at just a $3.6 billion market cap, but it also had over $500 million in cash and no debt heading into this week. The new capital raise through the debt markets thus seems like the most shareholder-friendly way to raise capital, especially with the stock down so much. It may also be a hint that Skillz sees some attractive acquisition targets out there.

Now what

Hopefully, this week's bounce is a sign Skillz's stock has bottomed, although that is hard to determine. Either way, Skillz looks intriguing at these levels given its two-sided marketplace for mobile gamers and developers, and high gross margins that top 90%. It's a stock to watch heading into 2022.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns and recommends Skillz Inc. The Motley Fool has a disclosure policy.

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