Insights

Why Skillz Shares Jumped 27% in July

What happened

Shares of Skillz (NYSE: SKLZ) surged 27.4% higher in July, according to data from S&P Global Market Intelligence, as much of the rest of the market went up with it.

The mobile esports platform ended last month with the announcement that Ian Lee, its chief financial officer (CFO), was leaving the company to pursue other interests and would be replaced by Jason Roswig, a managing director at The Blackstone Group, an investment management company. Roswig will be both president and CFO. The transition will occur on Aug. 8. 

Image source: Getty Images.

So what

Skillz provides a platform that allows users to wager real money on games appearing on the site. Business soared during the pandemic lockdowns, but the reopened economy has wreaked havoc on Skillz’s performance, and its stock has lost 96% of its value after hitting an all-time high of $47 per share in February 2021.

Skillz’s business is struggling. In its just-reported second-quarter earnings report, the mobile esports platform suffered from slower-than-expected product development, while revenue after engagement marketing (RAEM) declined sequentially, and the number of paying monthly active users (PMAUs) was also down quarter to quarter.

The company is making progress on narrowing its losses, reducing its net loss 59% to $61 million. But revenue fell 22% to $93 million, RAEM was off 16% at $43 million, gross profits contracted 24%, and PMAUs dropped to 420,000 from 570,000 in the first quarter, a 26% decline.

It seems Skillz believes Roswig, an asset manager who oversaw financial and technology investments, and who has a background in finance and business development, will help it better navigate a turnaround.

Now what

Skillz lowered its full-year revenue guidance to $275 million, a 31% revision lower from previous guidance of $400 million, while RAEM guidance was also dramatically revised, with expectations now for $160 million versus the previous $245 million estimate for the full year. 

What’s even worse is that Skillz now anticipates an adjusted EBITDA margin of approximately negative 56% this year, whereas three months ago it had forecast negative 37% margins. That makes the current-year results worse than what it experienced in 2021 when the adjusted EBITDA margin was negative 47%. 

There’s no short-term fix for this. It’s going to require Skillz to bring new and better games to the platform. And while it has certain products under development, it’s going to take time to see if they resonate with players, whom it then needs to induce to stay around — and pay for the privilege.

That seems a tall order these days, and Skillz’s new president and CFO has his work cut out for him.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Skillz Inc. and The Blackstone Group Inc. The Motley Fool has a disclosure policy.

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