What happened
Shares of mobile-gaming platform Skillz (SKLZ -2.38%) shot up on Wednesday after a prominent analyst maintained a buy rating on the stock and set a price target almost double to where it trades right now. As of 3 p.m. ET, Skillz stock was up 14%. It's a small reprieve for shareholders who have seen the stock tumble 90% from its 52-week high.
So what
Citi analyst Jason Bazinet is keeping a buy rating for Skillz stock, according to The Fly. To Bazinet's credit, the analyst hasn't wavered in calling this stock a buy, now recommending it four times in the past year, according to TipRanks. However, the price target for Skillz stock has been falling along with the stock price. When Bazinet started covering Skillz last year, it was given a price target of $27 per share. The price target has steadily dropped in subsequent buy recommendations to today's price target of $9 per share.
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Even though the price target is falling, a price target of $9 per share still represents 95% upside from where Skillz stock was trading as of this writing. Reasons for Bazinet's bullishness include things like ongoing revenue growth and ongoing opportunities to start new revenue streams.
Now what
Regarding revenue growth, Skillz is no slouch. The company has surpassed management's top-line guidance in every quarter since going public. And in the most recent quarter -- the third quarter of 2021 -- revenue was up 70% year over year. Furthermore, it just launched in India this year, which speaks to the new revenue opportunities alluded to by Bazinet.
Revenue growth isn't the problem for Skillz. Profitability is.
When Skillz made its first presentation to go public, it said that 2022 would be the year it achieved positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). It also predicted an adjusted EBITDA loss of just $14 million in 2021. However, through the first three quarters of 2021, it's already racked up an adjusted EBITDA loss of $104 million.
The gap between where Skillz is and where it thought it would be at this point is wide, calling into question whether adjusted EBITDA profitability can really be achieved in 2022. While the company remains well capitalized with over $500 million on the balance sheet, I would listen to management's commentary regarding profitability when it reports earnings on Feb. 23.
