For thrills and chills (mostly chills, actually), investors can consider holding a few shares of California-based Skillz (NYSE:SKLZ). There’s no real safety in buying SKLZ stock. But as the old saying goes, nothing ventured, nothing gained.
One thing that cannot be denied is that Skillz is a fascinating company. After its merger with special-purpose acquisition company (SPAC) Flying Eagle Acquisition Corp. in late 2020, Skillz became the first publicly traded mobile e-sports platform.
Today, Skillz is a familiar name in the gamer community. The company is known for facilitating tournaments that enable players to compete against each other.
This might sound like a great business model, but SKLZ stock remains unloved on Wall Street. Still, the game of investing is won by folks who can learn to love the unloved — and some encouraging developments should make Skillz a worthy watch-list addition for risk-tolerant contrarians.
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A Closer Look at SKLZ Stock
Following its reverse merger, SKLZ stock opened at $17.89 on Dec. 17, 2020. Seven weeks later, shares topped out at $46.30. Traders with expert timing booked a gain of nearly 160%.
But that was then, and this is now. The Reddit users who probably targeted Skillz for a short squeeze in early 2021 have evidently moved on to other stocks.
Since topping out in February of last year, SKLZ stock embarked on a prolonged bear market, landing at $7 and change at the end of 2021. Today, shares are trading for less than $4.
There really aren’t any meaningful support levels to speak of, since buyers haven’t defended any price points. The level to watch going forward is $5. That’s the penny stock dividing line, as a penny stock can informally be defined as a stock that represents a small company and trades for less than $5 per share.
Hopefully, SKLZ stock can escape from Penny Stock Land before the technical damage worsens.
Skillz’ Progress Is Undeniable
Despite the 90%-plus decline in Skillz’ share price, the company is actually doing well on the financial front.
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For the third quarter, Skillz reported revenue of $102.1 million, representing a 70% year-over-year improvement. Not only that, but the company swung from a $42.9 million net loss in the third quarter of 2020 to a $50.8 million profit in Q3 2021. That’s pretty dramatic, and also encouraging.
Along with the positive financial news, investors should take note of the progress in Skillz’ international expansion efforts. Skillz is launching its gaming platform in India with a live pilot. As part of the pilot, players in India will reportedly be able to deposit funds in rupees in the Skillz-owned game Diamond Strike.
Bolstering the Balance Sheet
In the coming quarters, we should discern improvements in Skillz’ bottom line as a result of the company’s gaming launch in India. Meanwhile, Skillz is also taking important steps to firm up its fiscal profile. Specifically, the company offered $300 million worth of senior secured notes.
The term “senior notes” is really just a fancy way of referring to bonds that companies can issue to raise capital. Reassuringly, we should observe that these are senior secured notes. This means that, in this instance, Skillz isn’t issuing debt that’s not secured by collateral.
As Skillz contends, “This offering bolsters the Company’s already-strong balance sheet and increases the Company’s financial flexibility to take advantage of strategic opportunities.”
The company may use the net proceeds from the offering for potential investments and/or acquisitions targeting other companies, products or technologies.
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The Bottom Line on SKLZ Stock
It’s frustrating, no doubt, for Skillz’ investors to watch the share price continue to fall. This is happening even while the company is pivoting from a net loss to profits.
Moreover, Skillz is expanding its operations geographically. Plus, the company is raising hundreds of millions of dollars through the issuance of senior secured notes. That capital could be used to build an even better gaming platform, thereby generating more revenue and profits.
Really, there’s no need to give up on SKLZ stock now. The company is clearly making progress on multiple fronts, and it deserves a re-rating on Wall Street.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
