What happened
Shares of beleaguered mobile e-sports company Skillz (SKLZ -1.45%) were surging 20.2% as of 3:43 p.m. ET, in stark contrast to the rest of the market, which was significantly in the red at that time.
Why the big pop today? It likely has to do with a combination of Skillz's beaten-down share price and the announcement of its new NFL game today. Given the popularity of American football in the U.S. and around the world, investors may be hopeful the new game will reignite Skillz's flagging engagement and sales.
So what
Today, Skillz announced the winner of its NFL & Skillz Game Developer Challenge, with NFL QB Shootout by developer Play Mechanix declared the winner from out of over 200 entries. Of note, this was a collaboration between Skillz and the NFL, so the new game has some real NFL institutional bona fides behind it. The game is now available for Skillz customers to play, which should hopefully boost Skillz's revenue this current quarter and beyond.
Skillz CEO Andrew Paradise said in the press release: "Empowering game developers defines the heart and soul of what we do at Skillz, and is the reason why we approached the NFL to team up on this competition. We are excited to partner with Play Mechanix to offer the thrill and fun of NFL QB Shootout to millions of players."
Skillz could certainly use the boost. While Skillz has an attractive asset-light platform, upon which mobile gamers play against each other for money and prizes, Skillz has seen a big drop-off in engagement coming out of the pandemic and amid high inflation. In the June quarter, revenue declined 22%, as consumers played fewer online e-sports amid the economic reopening, and operating losses totaled $54 million last quarter alone. While Skillz does have $470 million in cash on the balance sheet, it also has $280 million in high-yield debt. So, the company is certainly on the clock to grow to profitability within the next two years. Perhaps NFL QB Shootout can help.
Now what
The new NFL game has been in the works for some time, so investors should have known something was coming. Nevertheless, since the 2022 NFL season is well underway, some may have grown impatient, sending Skillz down to fresh lows prior to today.
While the stock is near all-time lows, its market cap is still about $450 million, or about 1.6 times this year's sales as guided by management. That may seem cheap, but remember, Skillz is still very unprofitable at these levels. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin is projected to be an ugly negative 56% in 2022, meaning the company will continue to burn cash at a good clip.
If the new NFL game becomes a hit, leading to increased engagement, revenue, and profits, then that could turn things around in a big way for Skillz. However, today's huge move may already take that into account. Investors should still be cautious with this speculative stock -- although those interested in betting on a turnaround should keep tabs on the success of NFL QB Shootout.
