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Will Skillz Recover in 2022?

By Parkev Tatevosian, CFA – Jan 5, 2022 at 11:00AM

Key Points

  • Following a huge jump in players, Skillz has added only a modest number recently.
  • The company is spending more on sales and marketing than it earns in revenue.
  • In a bid to spur growth, it is investing in more innovative games and features.

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The mobile gaming platform struggled to attract new users in 2021.

As the New Year gets underway, last year's losers are happy to have a fresh start. The global economy experienced abrupt swings in activity as governments implemented and removed business restrictions.  

Skillz (SKLZ 10.86%) stock crashed in 2021 due to deteriorating operating performance. Investors interested in Skillz stock are now asking if it will recover in 2022.

A person looking at their phone and cheering.

Image source: Getty Images.

Slowing user growth 

Skillz is a mobile-gaming platform where users can wager on the games they play. The bulk of Skillz's struggles in 2021 can be seen through its monthly active user trends. In the nine months ended Sept. 30, 2020, Skillz increased monthly average users (MAU) to 2.6 million, up from the 1.5 million it had during the same time period in 2019.

Fast forward to 2021, and in the nine months ended Sept. 30, Skillz had 2.7 million MAU, an increase of only 100,000 from 2020. That's despite management's valiant efforts to boost user growth. In these nine months, the company spent $310 million on sales and marketing while it earned revenue of $275 million.

Similarly, in the nine months ended Sept. 30 in 2020, Skillz spent $172 million on sales and marketing on revenue of $162 million. So Skillz spent more on sales and marketing than it earned in revenue in both years. However, the significant difference is in the results. In the nine months of 2020, Skillz acquired 1.1 million new users. During the same time in 2021, it gained only 100,000.

So, of course, the aggressive spending on sales and marketing is leading to losses on the bottom line. 

Will 2022 be any different? 

Unfortunately, 2022 is unlikely to be significantly different for Skillz. The same economic reopening trends will likely persist despite rising COVID-19 cases caused by the omicron variant. Nearly nine billion doses of vaccines against COVID-19 have been administered, and citizens have little appetite for more economic lockdowns. 

To turn things around, Skillz may need better innovation -- new games that attract users through word of mouth on social media channels or new capabilities that make existing games more compelling. What's becoming apparent is that spending aggressively on sales and marketing to attract new players is not working. 

The good news for investors is that it seems management is shifting gears. In its Q3 ended Sept. 30, the company launched a new game, Big Buck Hunter: Marksman, which helped boost MAU by 25% sequentially. What's more, Skillz announced a $50 million investment in Exit Games, a gaming developer based in Germany, which will greatly accelerate its ability to develop new, multiplayer games in various genres.

Whether these investments will provide lasting improvement in user growth and operating performance remains to be seen. However, the change in focus may improve Skillz's stock price performance in 2022. The stock crashed by 63% in 2021 and is trading at a price-to-sales ratio of 7.9, the lowest in the company's brief history as a public company. A shift in focus by management that starts showing results could be enough to improve investor sentiment on Skillz stock.

Parkev Tatevosian 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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