What happened
Shares of Skillz (SKLZ 1.01%) slumped a whopping 48.3% in December, according to data from S&P Global Market Intelligence. The competitive and mobile gaming company notified investors that it is in danger of being delisted from the New York Stock Exchange. The company is also seeing significant revenue declines and is hemorrhaging money.
As of this writing, shares of Skillz are down 90% over the past year, meaning that for every $10 invested in the stock a year ago, only $1 remains today.
So what
On Dec. 16, the New York Stock Exchange (NYSE) told Skillz that it was not in compliance with its share price rules since the stock was trading at an average price below $1 for 30 consecutive trading days. The day after this news was released, Skillz stock started plummeting and never looked back. Today, the stock trades at $0.52, meaning it will take close to a 100% gain to get back above $1 a share.
In order to comply with these rules, Skillz will likely do what is called a reverse stock split to get its share price consistently above $1. This will have no effect on the actual business Skillz runs; it just means that the overall shares outstanding will decrease.
None of this share count and compliance nonsense matters to shareholders because Skillz's business is in terrible shape at the moment. Last quarter, revenue declined 41% year over year to $60.2 million, a sharp decline that shows how little traction Skillz's mobile gaming platform is achieving at the moment. Net income looks even worse, with a loss of $78.5 million in the quarter and $287.3million through the first nine months of 2022.
Skillz does have over $500 million in cash on its balance sheet, but that will dwindle away quickly unless it can reverse all of these losses. It also has $272 million in long-term debt that could put it in a precarious position if its debtholders try to force it into bankruptcy and take claim on the business and all of its assets. In this situation, equityholders' stake would get wiped out to zero.
NYSE: SKLZ
Key Data Points
Now what
Skillz is just a penny stock that got overhyped during the 2020-2021 bull market. The business model is broken, and if things don't turn around soon, the company will be headed for bankruptcy. Even though the stock is already down 90%, you will lose all of your investment if you buy shares today and the company goes kaput in 2023. All investors -- no matter how big or small -- should avoid buying Skillz stock right now.
