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2021-10-08

good to hold it if you believe in the mgt team and their future direction

Skillz Stock: Is It A Buy, Or Is It A Value Trap?

Summary Skillz is a mobile gaming technology platform. The company focuses on enabling monetization

Skillz Stock: Is It A Buy, Or Is It A Value Trap?

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":821180043,"tweetId":"821180043","gmtCreate":1633705286515,"gmtModify":1633744951723,"author":{"id":3586079929346346,"authorId":3586079929346346,"authorIdStr":"3586079929346346","name":"SieCW","avatar":"https://static.tigerbbs.com/b1efb98bcad0f6eb05f4d8529555d042","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":10,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>good to hold it if you believe in the mgt team and their future direction</body></html>","htmlText":"<html><head></head><body>good to hold it if you believe in the mgt team and their future direction</body></html>","text":"good to hold it if you believe in the mgt team and their future direction","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/821180043","repostId":1118519462,"repostType":2,"repost":{"id":"1118519462","pubTimestamp":1633584645,"share":"https://www.laohu8.com/m/news/1118519462?lang=&edition=full","pubTime":"2021-10-07 13:30","market":"us","language":"en","title":"Skillz Stock: Is It A Buy, Or Is It A Value Trap?","url":"https://stock-news.laohu8.com/highlight/detail?id=1118519462","media":"Seeking Alpha","summary":"Summary\n\nSkillz is a mobile gaming technology platform. The company focuses on enabling monetization","content":"Summary\n<ul>\n <li>Skillz is a mobile gaming technology platform. The company focuses on enabling monetization opportunities through competition.</li>\n <li>It has been spending heavily on user acquisition. It has managed to improve its paying MAU ratio. However, its falling total MAU base could be a concern.</li>\n <li>The stock still trades at a premium despite a -61.8% YTD performance. We address in this article whether the stock is worth adding for investors now.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/419db089ba5af30b574a8474cfb9050a\" tg-width=\"1536\" tg-height=\"1024\" width=\"100%\" height=\"auto\">cokada/E+ via Getty Images\nInvestment Thesis\nSkillz(NYSE:SKLZ)is a mobile gaming technology platform. The company focuses on enabling monetization opportunities through competition. In contrast to other gaming platforms that monetize through in-app purchases [IAP] or in-app advertising [IAA]. The company believes that the business model of such platforms is \"broken.\" Furthermore, the company believes that the future of gaming is moving towards eSports. Hence, Skillz Inc. is on a mission to \"democratize gaming&nbsp;by leveling the playing field for access [to developers] to build esports.\"\nHowever,in our previous article, we explained that IAP and IAA are unlikely to be irrelevant anytime soon. Major game publishers continue to rely on these proven monetization models. We also showed that the majority of gamers are supportive of such models. Moreover, eSports is also not unique to SKLZ. Major game developers such as Garena(NYSE:SE)have also been leveraging on eSports. eSports allow game developers to build a highly engaged community of gamers.\nWe continue to remain shareholders of SKLZ stock. However, the stock is down more than 20% from our initial buy price. In addition, we highlighted before that it's a speculative stock for our portfolio. Hence, the exposure is much smaller than our core holdings. Nevertheless, we have no qualms in continuing to hold it for the longer term.\nWe will present our thesis on whether the stock's current weakness represents an opportunity for investors to add exposure.\nSKLZ Stock YTD Performance\n<img src=\"https://static.tigerbbs.com/b1845c53df3559cbde4c5840c38e760c\" tg-width=\"640\" tg-height=\"331\" width=\"100%\" height=\"auto\">SKLZ Stock YTD performance (as of 5 Oct 21).\nGaming stocks had a terrible year so far. SKLZ stock's YTD performance was the worst here. The stock returned -61.8% YTD. It had started so brightly as it raced close to a 100% YTD lead in February. Unfortunately, that momentum has turned bearish and wiped out all its gains within a month. Except for SE, gaming stocks have significantly underperformed the SPDR S&amp;P 500 ETF(NYSEARCA:SPY)in 2021.\nSkillz is Investing Aggressively for Growth\n<img src=\"https://static.tigerbbs.com/0638505559f43d708cf16af67fdc5ce4\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Skillz gross margins and SG&amp;A margins. Data source: S&amp;P Capital IQ\n<img src=\"https://static.tigerbbs.com/845092c517937e2475c2dc9e3e993c9e\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Skillz take rate. Data source: Company filings\nSkillz operates with an \"asset-light,\" low direct costs business model. It doesn't need to hire and retain expensively assembled developer teams. Instead, it's a platform for developers to build their games for monetization on Skillz's competition platform. Therefore, Skillz takes a commission from its net gross marketplace volume (GMV). The commission is defined as its take rate.\nSkillz has maintained a consistent take rate over time. The company posted a take rate of 14.7% in FQ2'21. However, Skillz also highlighted that it could increase its take rate in the future to boost monetization. Such opportunities could arise if it could attract more paying users to its platform.\nThe company's gross profit is then derived from its take rate. So under its \"asset-light\" platform, it's not surprising that it has been reporting solid gross margins. The company has consistently reported gross margins of around 95%.\nHowever, the main \"eyesore\" is its SG&amp;A margins. Its very high SG&amp;A margins are the main reason for its negative EBIT margins. Skillz CEO Andrew Paradise recently discussed the purpose of the company's aggressiveness in its SG&amp;A spending. He emphasized:\n<blockquote>\n Part of that is, as a reminder, our gross margin is 95% as a business. So we can be profitable today if we want to slow down our penetration of the massive market ahead of us. But when you think about our business, just like kind of thinking about Q2 of this year, our adjusted EBITDA margin before user acquisition was actually 17%.\n We just -- we believe that capturing the now $2.8 billion gamer opportunity in front of us by investing in growth with this discipline of understanding these paybacks, carefully monitoring cohort performance.(from Citi 2021 Global Technology Virtual Conference)\n</blockquote>\nTherefore, Paradise believes that SKLZ still has a massive opportunity to capture the growth in mobile gaming. Coupled with its eSports appeal, the company is definitely operating in a fast-growing market.\nThe important question facing investors is whether its aggressiveness makes sense. SG&amp;A margins above 140% are very costly to sustain. Importantly, SKLZ has a relatively healthy cash hoard of $693M, with no debt. Hence, the company is in a good financial position to conduct its aggressive user acquisition (UA) strategy.\nMoreover, the Aarki acquisition is also expected to help Skillz optimize its UA costs. The company highlighted that it expects to migrate about $200M in UA spending to Aarki this year. It's a sizeable amount as the company expended about $250M in SG&amp;A expenses in H1'21. The migrated spending would allow Aarki to optimize about $40M to $60M in UA costs. However, Skillz has also telegraphed that cost optimization would take time. The optimization process might take up to 24 months to complete. Therefore, the operational efficiencies from the migration to Aarki would take some time to show up.\nBut, Monthly Active Users are Falling\nThe company reported monthly active users (MAU) of 2.4M in FQ2'21. It followed a recent declining trend. In FQ1'21, the MAU was 2.7M. Hence, there was a marked 11.1% quarter-over-quarter ((QoQ)) drop. Moreover, YoY figures hardly changed. The company reported MAU of 2.6M in FQ1'20. It also reported MAU of 2.5M in Q2'20. Therefore, readers can easily glean that Skillz has difficulty attracting more MAU to its platform. As a result, the company might need to continue spending aggressively to maintain its MAU.\n<img src=\"https://static.tigerbbs.com/2a05cb47d9038c2fb7d912874c03a442\" tg-width=\"610\" tg-height=\"482\" width=\"100%\" height=\"auto\">Skillz Paying MAU. Source: Skillz\nOf course, the focus of the company has always been on its Paying MAU. Paying MAU accounted for 19.3% of its total MAU base in FQ2'21. It was an improvement over FQ1'21's 17.3%. It shows that the company has been able to improve its user monetization ratio. It's also a significant improvement over FQ2'20's 12% ratio. From this perspective, it shows that the company's aggressive UA efforts seem to be making progress. Notwithstanding, we think it's still necessary for Skillz to address its declining trend of MAU. The company could certainly address the short-term gaps with improved monetization metrics. At the moment, we don't see anything amiss. But, it would likely get increasingly harder to monetize a falling MAU base.\nWould Venturing into Synchronous Gaming Be The Solution?\nSkillz upped the ante by investing in Exit Games to accelerate its synchronous gaming ambitions. The most prominent genre is battle royale games. Such games include Fortnite, Garena Free Fire (SE), and PUBG Mobile(OTCPK:TCEHY). These are the most dominant mobile games in the battle royale genre today.SensorTower's Q3'21 revenue data&nbsp;shows PUBG Mobile and Garena Free Fire are the #1 and #8 games worldwide. However, it's important to note that game development has a long lead time.\nWorldwide gaming leader Tencent clearly emphasized the challenge in developing \"original IPs.\" Tencent emphasized:\n<blockquote>\n Just one point to add, right. On the gaming side, I think you emphasized [the] point [of] new creation of IPs and true,\n is many years before you can see final product.I think if you look at our recent pipeline of games, which we have announced of more than 40 of them, I think it's a combination, right?\n Some are original IPs, which would take a very long time to develop.Some are actually existing IPs that we're going to take existing assets, a pretty proven game play, and we will add our innovation for mobile, and then we developed it for launch. (from Tencent FQ1'21 earnings call)\n</blockquote>\nIt explains why game developers \"milk\" their top titles for a significant amount of time. Hence, we are not so sure how competitive would SKLZ's new gaming titles be? Top battle royale developers derive huge profits from their top titles. They also have no problems attracting new users. These are massive cash cows for them.\n<img src=\"https://static.tigerbbs.com/9cb7c95181f23ec88b008de9cf325f09\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Garena quarterly active users (QAU). Data source: SE company filings\n<img src=\"https://static.tigerbbs.com/2a0e48af16ee92effa7f115ca9a30870\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Garena Adjusted EBITDA margins. Data source: SE company filings\nGarena's QAU growth is in huge contrast to SKLZ's metrics. Garena grew its QAU by 11.8% QoQ. Its QAU also grew by 45.1% YoY. Garena is a hugely profitable segment for Sea Limited. The company reported a 72.3% Adjusted EBITDA margin for FQ2'21. They don't need to allocate that kind of massive SG&amp;A spends for Free Fire. Yet, users kept on joining the Free Fire platform.\nWe applaud Skillz for its ambitious push into new gaming genres. However, we are just unsure whether it could be viable for the company to compete in these highly lucrative segments. These are typically segments dominated by the best gaming publishers or developers. These are nothing like Tether or Big Run that have been driving SKLZ's revenue.\nWe think it's up to SKLZ to prove us wrong here.\nGarena's QAU growth is in huge contrast to SKLZ's metrics. Garena grew its QAU by 11.8% QoQ. Its QAU also grew by 45.1% YoY. Garena is a hugely profitable segment for Sea Limited. The company reported a 72.3% Adjusted EBITDA margin for FQ2'21. They don't need to allocate that kind of massive SG&amp;A spends for Free Fire. Yet, users kept on joining the Free Fire platform.\nWe applaud Skillz for its ambitious push into new gaming genres. However, we are just unsure whether it could be viable for the company to compete in these highly lucrative segments. These are typically segments dominated by the best gaming publishers or developers. These are nothing like Tether or Big Run that have been driving SKLZ's revenue.\nWe think it's up to SKLZ to prove us wrong here.\nSo, is SKLZ Stock a Buy, or is It a Value Trap?\nSkillz is estimated to grow its revenue by a CAGR of 25.1% by FY25. However, it's only expected to turn GAAP EBITDA profitable by FY24. We don't think the revenue CAGR is outstanding by most \"speculative stocks\" measures. It looks average, in fact.\nSkillz is estimated to grow its revenue by a CAGR of 25.1% by FY25. However, it's only expected to turn GAAP EBITDA profitable by FY24. We don't think the revenue CAGR is outstanding by most \"speculative stocks\" measures. It looks average, in fact.\n<img src=\"https://static.tigerbbs.com/5ccaf8a9d02c3b657af6e2422970e0c1\" tg-width=\"640\" tg-height=\"265\" width=\"100%\" height=\"auto\">SKLZ stock EV/Fwd Revenue trend. Data source: S&amp;P Capital IQ\nAs mentioned, SKLZ stock falls within the speculative category of our portfolio. However, we are willing to give the company the benefit of the doubt to prove us wrong here. After all, it has shown that it could monetize its users well. The monetization strategies are clearly working.\nHowever, it is still not a cheap stock despite the -61.8% YTD performance. It's still valued at a premium against the slower-growth Electronic Arts(NASDAQ:EA). But, EA is much more profitable. Moreover, it's still expected to grow its revenue by 10.4% by FY25. Hence, it's not that slow either for its size. For some investors, SKLZ stock might still be too expensive for what it's worth. It is definitely not a stock for conservative investors or even value investors.\nNotwithstanding, we are retaining our Buy rating on SKLZ stock for now. However, we would like to remind you that this stock might only be appropriate as a speculative stock in your portfolio.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Skillz Stock: Is It A Buy, Or Is It A Value Trap?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSkillz Stock: Is It A Buy, Or Is It A Value Trap?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-10-07 13:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4458690-skillz-stock-is-it-a-buy-or-is-it-a-value-trap>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nSkillz is a mobile gaming technology platform. The company focuses on enabling monetization opportunities through competition.\nIt has been spending heavily on user acquisition. It has managed...\n\n<a href=\"https://seekingalpha.com/article/4458690-skillz-stock-is-it-a-buy-or-is-it-a-value-trap\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SKLZ":"Skillz Inc"},"source_url":"https://seekingalpha.com/article/4458690-skillz-stock-is-it-a-buy-or-is-it-a-value-trap","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1118519462","content_text":"Summary\n\nSkillz is a mobile gaming technology platform. The company focuses on enabling monetization opportunities through competition.\nIt has been spending heavily on user acquisition. It has managed to improve its paying MAU ratio. However, its falling total MAU base could be a concern.\nThe stock still trades at a premium despite a -61.8% YTD performance. We address in this article whether the stock is worth adding for investors now.\n\ncokada/E+ via Getty Images\nInvestment Thesis\nSkillz(NYSE:SKLZ)is a mobile gaming technology platform. The company focuses on enabling monetization opportunities through competition. In contrast to other gaming platforms that monetize through in-app purchases [IAP] or in-app advertising [IAA]. The company believes that the business model of such platforms is \"broken.\" Furthermore, the company believes that the future of gaming is moving towards eSports. Hence, Skillz Inc. is on a mission to \"democratize gaming by leveling the playing field for access [to developers] to build esports.\"\nHowever,in our previous article, we explained that IAP and IAA are unlikely to be irrelevant anytime soon. Major game publishers continue to rely on these proven monetization models. We also showed that the majority of gamers are supportive of such models. Moreover, eSports is also not unique to SKLZ. Major game developers such as Garena(NYSE:SE)have also been leveraging on eSports. eSports allow game developers to build a highly engaged community of gamers.\nWe continue to remain shareholders of SKLZ stock. However, the stock is down more than 20% from our initial buy price. In addition, we highlighted before that it's a speculative stock for our portfolio. Hence, the exposure is much smaller than our core holdings. Nevertheless, we have no qualms in continuing to hold it for the longer term.\nWe will present our thesis on whether the stock's current weakness represents an opportunity for investors to add exposure.\nSKLZ Stock YTD Performance\nSKLZ Stock YTD performance (as of 5 Oct 21).\nGaming stocks had a terrible year so far. SKLZ stock's YTD performance was the worst here. The stock returned -61.8% YTD. It had started so brightly as it raced close to a 100% YTD lead in February. Unfortunately, that momentum has turned bearish and wiped out all its gains within a month. Except for SE, gaming stocks have significantly underperformed the SPDR S&P 500 ETF(NYSEARCA:SPY)in 2021.\nSkillz is Investing Aggressively for Growth\nSkillz gross margins and SG&A margins. Data source: S&P Capital IQ\nSkillz take rate. Data source: Company filings\nSkillz operates with an \"asset-light,\" low direct costs business model. It doesn't need to hire and retain expensively assembled developer teams. Instead, it's a platform for developers to build their games for monetization on Skillz's competition platform. Therefore, Skillz takes a commission from its net gross marketplace volume (GMV). The commission is defined as its take rate.\nSkillz has maintained a consistent take rate over time. The company posted a take rate of 14.7% in FQ2'21. However, Skillz also highlighted that it could increase its take rate in the future to boost monetization. Such opportunities could arise if it could attract more paying users to its platform.\nThe company's gross profit is then derived from its take rate. So under its \"asset-light\" platform, it's not surprising that it has been reporting solid gross margins. The company has consistently reported gross margins of around 95%.\nHowever, the main \"eyesore\" is its SG&A margins. Its very high SG&A margins are the main reason for its negative EBIT margins. Skillz CEO Andrew Paradise recently discussed the purpose of the company's aggressiveness in its SG&A spending. He emphasized:\n\n Part of that is, as a reminder, our gross margin is 95% as a business. So we can be profitable today if we want to slow down our penetration of the massive market ahead of us. But when you think about our business, just like kind of thinking about Q2 of this year, our adjusted EBITDA margin before user acquisition was actually 17%.\n We just -- we believe that capturing the now $2.8 billion gamer opportunity in front of us by investing in growth with this discipline of understanding these paybacks, carefully monitoring cohort performance.(from Citi 2021 Global Technology Virtual Conference)\n\nTherefore, Paradise believes that SKLZ still has a massive opportunity to capture the growth in mobile gaming. Coupled with its eSports appeal, the company is definitely operating in a fast-growing market.\nThe important question facing investors is whether its aggressiveness makes sense. SG&A margins above 140% are very costly to sustain. Importantly, SKLZ has a relatively healthy cash hoard of $693M, with no debt. Hence, the company is in a good financial position to conduct its aggressive user acquisition (UA) strategy.\nMoreover, the Aarki acquisition is also expected to help Skillz optimize its UA costs. The company highlighted that it expects to migrate about $200M in UA spending to Aarki this year. It's a sizeable amount as the company expended about $250M in SG&A expenses in H1'21. The migrated spending would allow Aarki to optimize about $40M to $60M in UA costs. However, Skillz has also telegraphed that cost optimization would take time. The optimization process might take up to 24 months to complete. Therefore, the operational efficiencies from the migration to Aarki would take some time to show up.\nBut, Monthly Active Users are Falling\nThe company reported monthly active users (MAU) of 2.4M in FQ2'21. It followed a recent declining trend. In FQ1'21, the MAU was 2.7M. Hence, there was a marked 11.1% quarter-over-quarter ((QoQ)) drop. Moreover, YoY figures hardly changed. The company reported MAU of 2.6M in FQ1'20. It also reported MAU of 2.5M in Q2'20. Therefore, readers can easily glean that Skillz has difficulty attracting more MAU to its platform. As a result, the company might need to continue spending aggressively to maintain its MAU.\nSkillz Paying MAU. Source: Skillz\nOf course, the focus of the company has always been on its Paying MAU. Paying MAU accounted for 19.3% of its total MAU base in FQ2'21. It was an improvement over FQ1'21's 17.3%. It shows that the company has been able to improve its user monetization ratio. It's also a significant improvement over FQ2'20's 12% ratio. From this perspective, it shows that the company's aggressive UA efforts seem to be making progress. Notwithstanding, we think it's still necessary for Skillz to address its declining trend of MAU. The company could certainly address the short-term gaps with improved monetization metrics. At the moment, we don't see anything amiss. But, it would likely get increasingly harder to monetize a falling MAU base.\nWould Venturing into Synchronous Gaming Be The Solution?\nSkillz upped the ante by investing in Exit Games to accelerate its synchronous gaming ambitions. The most prominent genre is battle royale games. Such games include Fortnite, Garena Free Fire (SE), and PUBG Mobile(OTCPK:TCEHY). These are the most dominant mobile games in the battle royale genre today.SensorTower's Q3'21 revenue data shows PUBG Mobile and Garena Free Fire are the #1 and #8 games worldwide. However, it's important to note that game development has a long lead time.\nWorldwide gaming leader Tencent clearly emphasized the challenge in developing \"original IPs.\" Tencent emphasized:\n\n Just one point to add, right. On the gaming side, I think you emphasized [the] point [of] new creation of IPs and true,\n is many years before you can see final product.I think if you look at our recent pipeline of games, which we have announced of more than 40 of them, I think it's a combination, right?\n Some are original IPs, which would take a very long time to develop.Some are actually existing IPs that we're going to take existing assets, a pretty proven game play, and we will add our innovation for mobile, and then we developed it for launch. (from Tencent FQ1'21 earnings call)\n\nIt explains why game developers \"milk\" their top titles for a significant amount of time. Hence, we are not so sure how competitive would SKLZ's new gaming titles be? Top battle royale developers derive huge profits from their top titles. They also have no problems attracting new users. These are massive cash cows for them.\nGarena quarterly active users (QAU). Data source: SE company filings\nGarena Adjusted EBITDA margins. Data source: SE company filings\nGarena's QAU growth is in huge contrast to SKLZ's metrics. Garena grew its QAU by 11.8% QoQ. Its QAU also grew by 45.1% YoY. Garena is a hugely profitable segment for Sea Limited. The company reported a 72.3% Adjusted EBITDA margin for FQ2'21. They don't need to allocate that kind of massive SG&A spends for Free Fire. Yet, users kept on joining the Free Fire platform.\nWe applaud Skillz for its ambitious push into new gaming genres. However, we are just unsure whether it could be viable for the company to compete in these highly lucrative segments. These are typically segments dominated by the best gaming publishers or developers. These are nothing like Tether or Big Run that have been driving SKLZ's revenue.\nWe think it's up to SKLZ to prove us wrong here.\nGarena's QAU growth is in huge contrast to SKLZ's metrics. Garena grew its QAU by 11.8% QoQ. Its QAU also grew by 45.1% YoY. Garena is a hugely profitable segment for Sea Limited. The company reported a 72.3% Adjusted EBITDA margin for FQ2'21. They don't need to allocate that kind of massive SG&A spends for Free Fire. Yet, users kept on joining the Free Fire platform.\nWe applaud Skillz for its ambitious push into new gaming genres. However, we are just unsure whether it could be viable for the company to compete in these highly lucrative segments. These are typically segments dominated by the best gaming publishers or developers. These are nothing like Tether or Big Run that have been driving SKLZ's revenue.\nWe think it's up to SKLZ to prove us wrong here.\nSo, is SKLZ Stock a Buy, or is It a Value Trap?\nSkillz is estimated to grow its revenue by a CAGR of 25.1% by FY25. However, it's only expected to turn GAAP EBITDA profitable by FY24. We don't think the revenue CAGR is outstanding by most \"speculative stocks\" measures. It looks average, in fact.\nSkillz is estimated to grow its revenue by a CAGR of 25.1% by FY25. However, it's only expected to turn GAAP EBITDA profitable by FY24. We don't think the revenue CAGR is outstanding by most \"speculative stocks\" measures. It looks average, in fact.\nSKLZ stock EV/Fwd Revenue trend. Data source: S&P Capital IQ\nAs mentioned, SKLZ stock falls within the speculative category of our portfolio. However, we are willing to give the company the benefit of the doubt to prove us wrong here. After all, it has shown that it could monetize its users well. The monetization strategies are clearly working.\nHowever, it is still not a cheap stock despite the -61.8% YTD performance. It's still valued at a premium against the slower-growth Electronic Arts(NASDAQ:EA). But, EA is much more profitable. Moreover, it's still expected to grow its revenue by 10.4% by FY25. Hence, it's not that slow either for its size. For some investors, SKLZ stock might still be too expensive for what it's worth. It is definitely not a stock for conservative investors or even value investors.\nNotwithstanding, we are retaining our Buy rating on SKLZ stock for now. However, we would like to remind you that this stock might only be appropriate as a speculative stock in your portfolio.","news_type":1},"isVote":1,"tweetType":1,"viewCount":253,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":59,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}