Posted on: March 9, 2021, 12:14h.
Last updated on: March 9, 2021, 02:52h.
Skillz Inc. (NYSE:SKLZ) stock is bouncing back today following a Monday shellacking at the hands of a bearish report by due diligence firm Wolfpack Research. The rebound came after the company took issue with the claims.
In late trading, shares of the esports and mobile games developer are higher by almost five percent, defraying some of yesterday’s double-digit slide.
A report from Wolfpack Research contains numerous errors and misleading statements about Skillz,” according to a statement issued by San Francisco-based Skillz to Casino.org. “The company has previously announced that it will release its 2020 Year-End and Q4 earnings results on Wednesday after the close of the market.”
Skillz did not respond when asked if tomorrow’s earnings release – its first following its December 2020 debut as a freestanding public company — is preventing it from making more extensive comments.
Light on Details
On Monday, Wolfpack issued a 16-page report entitled “SKLZ: It Takes Little to See This SPACtacular Disaster Coming” — a reference to the gaming firm merging with a special purpose acquisition company (SPAC) as a means of going public. The research firm also revealed it’s short Skillz stock.
In the report, Wolfpack makes an array of scathing assertions, including that while Skillz may be able to “eke out” fourth-quarter forecasts, numbers for the current quarter could be hard to meet. That’s because third-party app data indicates “SKLZ’s total installations are down double digits in the first two months of 2021.”
Additionally, the research firm takes issue with a developers deal with the NFL announced last month. Wolfpack says that partnership may not amount to much of anything and that it was publicized just days before the company released an S-1 filing with US regulators indicating insiders were preparing to sell stock. Wolfpack claims news of the NFL deal “pumped” Skillz stock to all-time highs and allowed insiders to sell at “inflated prices.”
Despite the gravity of these assertions, Skillz has yet to address exactly what is erroneous and misleading in the Wolfpack report. Five Wall Street analysts cover the company, and it’s possible the matter of the bearish research is brought up on tomorrow’s earnings conference call.
The stock still has some support among big investors. For example, Cathie Wood’s ARK Investment Management used Monday’s decline to add another 61,259 shares of Skillz. The fund manager now owns 2.65 million shares.
Questioning Skillz Stock Valuations
In the blank-check deal that set the stage for the gaming company to go public, Skillz was valued at $3.5 billion — a figure Wolfpack calls “aggressive.”
“Forward-looking statements are protected in SPAC proxies, allowing them to use whatever projections they want for investor presentations, and even to determine a valuation for the business,” says Wolfpack. “This allowed SKLZ to obtain a SPAC valuation of $3.5 billion — based on a multiple of projected 2022 revenue — while its most recent private equity valuation was only $725 million on August 30, 2019, almost exactly one year before the SPAC.”
Even with a 37 percent decline over the past month, Skillz has a market capitalization of $7.13 billion.
The research firm also notes Skillz depends on three games — 21 Blitz, Blackout Bingo, and Solitaire Cube — for 88 percent of revenue. Wolfpack says third-quarter 2020 revenue from 21 Blitz and the solitaire game fell almost six percent.
The due diligence firm also points out the Skillz was booted from the Google Play Store in 2013, and although the company recently liberalized some of its rules for gaming firms, Wolfpack believes Google is determined to keep companies like Skillz out of its app platform.