Online Mobile Multiplayer Video Game Competition Platform Actions Skillz (NYSE:SKLZ) stocks are finally recovering, gaining 54% last month. After a great start, the stock struggled and lost a lot of momentum. But if it pulls back a bit more, it looks like a great stock of video games for your wallet.
Shares are down more than 80% from their 52-week high of $ 46.30. It’s a tough pill to swallow for investors who have bought into what seemed like an unstoppable force in competitive gaming platforms – at least until now.
Skillz released its third quarter results on November 3, slightly missing analysts’ targets. Revenue jumped 70.5% year-over-year to $ 102.1 million.
Much of this growth can be attributed to Aarki, an AI-driven marketing platform the company recently acquired. More interestingly, Skillz spent 112% on marketing spend in the third quarter. However, Skillz reported an increase in the number of MAUs to 509,000 from 463,000 in the previous quarter.
We understand why the company wants to continue spending money. This is still just the start for Skillz and its operating model – being quite unique in making games on their own.
Instead, developers are encouraged to make a game and then sign a revenue sharing agreement with Skillz. So when a title hits the nail on the head, as is the case with Big dollar hunter recently, the company has to promote it strongly.
Meanwhile, to this end, SKLZ stock is currently facing strong headwinds in the form of high ad prices. This forces them to cut back on their customer acquisition marketing, resulting in slow growth in the number of users.
Overall, the situation is difficult for investors at this point. Recently, the only bright spot that comes to mind is the appointment of Vatsal Bhardwaj as the company’s new product manager. He brings a lot of experience to the fore as the company sails through troubled waters.
Understanding the business model
While there are several titles on Skillz, it generates most of its revenue from three games. However, investors who value an economic divide are worried – Skillz management is focused on increasing the quality and attractiveness of its games to customers.
While some investors have a problem with a concentration, management does not focus specifically on client / developer concentrations, but rather looks for ways to improve their services.
Skillz seems to see games on its platform in a way almost identical to Netflix (NASDAQ:NFLX) Where HBO Max could watch his movies or TV series. Its main interests are to promote their highest quality content in the hope of attracting more users.
CEO Andrew Paradise believes Skillz has a similar rotation policy to any major streaming service. Likewise, these companies are constantly on the lookout for new content in order to attract users who have disconnected.
Additionally, Skillz also has to look up and down the wide range of creations from software developers in this industry to find a gold nugget. Once that happens, its popularity will increase. HBO didn’t care when Game Of Thrones eclipsed the competition because it ultimately sparked interest in the company. It’s the same with Skillz.
Aarki is a great long term investment
Skillz has shown that it can cut marketing costs by acquiring an advertising company called Aarki. The AI-enabled mobile marketing platform helps brands grow and reconnect with users. Aarki uses machine learning in tandem with big data to produce an engaging creative campaign on any device or network they are present in, all without human intervention.
Aarki gives Skillz the opportunity to save time and money on their marketing. With Aarki, he can reduce his expenses by shifting some of that expense from other vendors to his own platform. It may also force competing companies that previously distributed products through them to compete for those customers with an improved product offering.
Buy SKLZ shares down
Concerns over the SKLZ stock are valid. However, once you understand the business model, they don’t look major. The biggest problem is the share price, which has risen significantly due to the appointment of Vatsal Bhardwaj.
Once the stock loses some of its shine, SKLZ stock is a good gaming company to have in your portfolio considering the growth of the gaming industry.
At the date of publication, Faizan Farooque did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Faizan Farooque is a contributing author of InvestorPlace.com and many other financial sites. Faizan has several years of stock market analysis experience and was a former data reporter at S&P Global Market Intelligence. His passion is helping the average investor make more informed decisions about their portfolio.