What happened
Shares of Skillz (SKLZ -1.63%) are soaring 30.3% from where they closed last Friday, according to data from S&P Global Market Intelligence, after the company revealed during its investor day presentation it was diving into cloud-based gaming.
By embedding the ability to move from a playable advertisement directly to the game itself, Skillz believes it will be able to reach new players, lower the friction of onboarding new players, and allow them to more easily discover new games.
Image source: Getty Images.
So what
Skillz is under considerable pressure to prove it can profitably grow its business. Customer acquisition costs have swamped the company, offsetting the revenue growth it has been enjoying.
Revenue is up threefold over the past three years, but operating losses have grown at an even faster rate, swelling to $181.4 million, or more than 7.5 times greater than the $23.6 million loss recorded in 2019. That forced Skillz to acquire Aarki, a a global demand-side advertising platform that reaches some 465 million people.
Even some of Skillz's biggest backers have pretty much given up hope it will be able to leverage its platform into a profitable venture. Investing guru Cathie Wood had been a big believer in Skillz, buying up millions upon millions of shares, but she began dumping shares in December and by February had all but completely closed out her position in the mobile gaming stock.
That decision alone sent Skillz stock careening 16% lower in a week. The current move higher has yet to get the stock back up to where it was before then.
Now what
Skillz CEO Andrew Paradise is looking for this "potential game changer" in the company's business model to roll out sometime this year. There is a world of opportunity awaiting Skillz, if it can tap into it.
There are over 15 million game developers and the company wants to be able to attract them to its platform by letting them more easily monetize their games. It believes that path forward is a more profitable one as it costs approximately $375,000 to develop a game and up to $10 million to acquire one that has any sort of following, while attracting developers to its site is an $11,000 expense.
By taking the path of least resistance it can achieve more at lower cost, making it a winning, profitable play. So far, investors like what they hear.
