Is Skillz Stock a Falling Knife or a Buy on Weakness?

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Last year, I wrote a few bearish columns on Skillz (NYSE:SKLZ). However, now there’s no question that I’m more optimistic about the outlook of SKLZ stock.

Skillz company logo on a website
Skillz company logo on a website

Source: Dennis Diatel / Shutterstock.com

For one thing, in recent months — in-line with my previous expectations — the stock has tumbled. In fact, as of Jan. 26, the shares have sunk more than 40% just in the month of January. They’ve also lost 60% over the previous three months and a bruising 85% in the last one year.

As such, the valuation of SKLZ is undoubtedly much less onerous than it was even a month ago. What’s more, the company is embracing a few strategies and a number of attributes that I view favorably.

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On the other hand, though, competition may soon become more intense. There are also a couple macrotrends that will likely hinder the stock. Plus, shares are still not cheap. So, let’s take a look at this name’s strengths and weaknesses in more detail.

SKLZ Stock: A Number of Strengths and Some Good Moves

For one, the decision to buy Aarki — an adtech company that utilizes machine learning, a form of artificial intelligence (AI) — was a positive development for SKLZ stock. Companies like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Roku (NASDAQ:ROKU) have benefited meaningfully from making similar acquisitions.

For example, I don’t think it’s purely coincidental that Roku’s profitability and overall results really took off in the years after it bought adtech company Dataxu in 2019. In a statement at the time of the deal, executive Scott Rosenberg promised the transaction would “deliver better results” for marketers.

Since that deal closed in late 2019, Roku’s ad revenue growth has accelerated tremendously. I do think the deal has been part of the reason for that. So, Skillz’s acquisition of Aarki could enable similar ad sales growth.

On top of this, fellow InvestorPlace contributor Muslim Farooque recently noted that Skillz “acts as a bridge between gamers and developers.” I believe that the company’s extensive utilization of developers enables it to create enticing features for its games. That may eventually enable the company to gain a significant amount of market share.

To that end, according to InvestorPlace contributor Chris Lau, one Skillz title called Trivia Crack is “the No. 1 trivia game in the world with 40 million monthly active users.” That success is certainly positive for both the company and SKLZ stock.

Skillz Still Has Small Weaknesses and Macro Hurdles

Still, in terms of competition, the situation here may deteriorate in a year or so. That’s because Microsoft (NASDAQ:MSFT) recently announced it has reached a deal to acquire Activision Blizzard (NASDAQ:ATVI). The combination of Microsoft’s augmented reality (AR) technology and huge cash hoard, along with Activision’s video-game-making expertise, will make the company even tougher to beat in the sector.