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Why Skillz Stock Sank by Almost 4% on Thursday

By Eric Volkman – Dec 16, 2021 at 6:43PM

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The company revealed pertinent details of a new debt offering.

What happened

Thursday wasn't a banner day to be an investor in Skillz (SKLZ 0.58%). The mobile games platform operator's stock price tumbled downhill by nearly 4%, a steeper drop than that suffered by the S&P 500 index. It seems investors didn't like the company's latest update on a new round of financing.

So what

After announcing last week that it would offer $300 million worth of senior secured notes in a private offering, Skillz filled in some of the issue's details late on Wednesday.

Young man playing a game on a smartphone.

Image source: Getty Images.

It said the interest rate of the notes, which are to mature in 2026, will be 10.25%. The issue is anticipated to close next Monday, Dec. 20.

"This offering bolsters the company's already-strong balance sheet and increases the company's financial flexibility to take advantage of strategic opportunities," Skillz said. It didn't get any more specific about what those "strategic opportunities" might be, although it admitted that one use of the proceeds might be for asset acquisitions.

Now what

Coming into the senior notes issue, Skillz had no debt at all, while at the end of its most recently reported quarter it held $540 million in cash and cash equivalents. Although it's entirely sensible for an ambitious, growing company to tap the debt market for additional funding, investors might not like that the specialty tech company's balance sheet won't be as squeaky clean as it formerly was.

Investors might also be concerned that the interest rate is tipping into the double-digits, although on an absolute basis it's well within the tech company's means. 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Skillz Inc. The Motley Fool has a disclosure policy.

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