Skillz Stock: Is There Light at the End of the Tunnel?

Shares of Skillz (SKLZ 0.33%) have plummeted since reaching their highs in early 2021, and the company's own forward guidance has disappointed Wall Street and investors alike. In this episode of "The Gaming Show" on Motley Fool Live, recorded on March 21, Fool.com contributors Jon Quast and Jose Najarro discuss if there's light at the end of the tunnel for the previously promising mobile game company.

Jon Quast: Eddie Z says, "Afternoon, guys. As a Skillz owner, is there light around the corner for this company down 88 percent from high?" Here's what I would say. Even with a greater focus on profitability going forward, if there was one thrust from Skillz management in the investor day presentation, I would say that that is one of them. Definitely this focus on greater profitability. They're saying adjusted earnings positivity, so adjusted EBITDA, which is the easiest of the profitability metrics. Let's just put it like that. They're not looking for breakeven until 2024 in a quarter. Full-year EBITDA positivity would come at the earliest 2025, according to the new guidance from management. That is a significant time period away to reach that profitability, with a concerted focus upon that profitability. That is one concern that I have, especially for a company that is slowing the revenue growth. It's a significant drop-off. Something that starts off with such a wonderful gross profit margin of 94%, why is it going to take that long? I would say that that is a reason for caution, and one that it may be, if it ever does recover to its previous high, I think we're talking a multiyear journey. I don't think it's going to happen in 2022. I don't think it's going to happen in 2023. I think it's going to be a long journey ahead to get back to its all-time high. There are some good things going on with Skillz, such as it is focusing on something called Skillz Cloud. This is going to make it easier for people to test games. Rather than having to download the entire game that they might want to play, they can actually play it immediately because Skillz is going to be hosting all the game on the cloud. You can try it out and see if you like it. If you do like it, then you can download it. I think that's going to significantly reduce the barrier of entry. In their upcoming guidance, nothing new is included such as acquisitions, new games, new geographies, none of that is assumed in the revenue guidance going forward. Definitely, still a lot here that could catalyze the growth of the upside, including brand partnerships like the NFL later this year.

Jose Najarro: Jon, if I may add. For me, responding to Eddie, I do think there's some light. There is possibility for light at the end of the tunnel. I just think that light is maybe a little bit dimmer than there was previously. But there's still light. I do think, if right now there's just a lot of basic-style games in Skillz, I know they've recently, about a year ago, they went into a partnership with someone who deals with a little bit more first-person-style games. I forget what was the company or technology they invested in, but it's to overall help, that multiplayer basis of first-person shooters. If in the future they team up with a big player that's in the first-person shooter in one of these popular games, that can definitely brighten up the light a lot more. The other thing is, I think that's probably the main one. I think if this company is able to stay afloat for times, and one of those big games gets into the platforms as they continue to improve those tools, that can definitely be a game changer for this company.