SKLZ shares are an excellent long-term speculative purchase under $ 10

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Skillz (NYSE:SKLZ) reported excellent earnings results in the third quarter of 2021 on 3 November. Nevertheless, investors chose to focus on the negative, causing SKLZ shares to fall in the rest of November.

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As I write this, SKLZ is trading below $ 10 for the first time since mid-October. Before that, you need to go back to March 2020, when it was traded under a special purpose vehicle (SPAC) name Flying Eagle Acquisition Corp.

It is common for SPACs to trade a little below or a little above their unit price IPO until they find a merger partner.

So, in terms of buying opportunities, if you’re a believer like me, now is a great time to buy this speculative stock. Here’s why.

SKLZ shares can be speculative

Just because Cathie Wood the accumulation of SKLZ stocks does not mean that you should either. If you use a tax-free account, you probably don’t want to include SKLZ in your portfolio.

Thus, despite reporting a 70.5% increase in sales in the third quarter to $ 102.1 million, it also reached a record 510,000 paid active users (PMAU) over the same period compared to 350,000 the year before.

Unfortunately, analysts had expected revenue of $ 102.61 million, a Wrong $ 510,000.

I guess if you’re a CFA and you believe modeling can’t do you wrong, that’s a big deal. But it is not.

To achieve $ 102.61 million in sales, they would need to increase by 71.0% or 0.5 percentage points more than they are. That’s the dot on most people’s radar.

When I look at his press release in the third quarter of 2021, I see an increase in all of them important metrics:

  • MAU increased by 300,000 to 3 million.
  • Its average revenue per user (ARPU) increased year-on-year by 53.2% to $ 11.40.
  • Average revenue per payer user (ARPPU) increased 15.5% to $ 66.82.
  • Gross Market Volume (GMV) – total entrance fees paid by users for competitions hosted by the Skillz platform – was $ 611 million, up 48.7% from last year.
  • And of course, PMAUs rose 45.7% year on year.

I speculate that we could find that the loss adjusted for EBITDA of $ 41.7 million (earnings before interest, taxes, depreciation and amortization) is $ 5.6 million higher than analysts estimate. Still, it wasn’t double or anything like that.

This is certainly an exaggerated reaction.

Where from here?

The company’s adjusted EBITDA for the first nine months of the 2021 fiscal year was $ 104.0 million, compared to $ 42.3 million a year earlier.

However, that means it generated $ 2.65 in sales for every dollar of adjusted EBITDA loss, down from $ 3.84 in sales in the same period a year earlier.

The big reason for this is the 80% increase in sales and marketing costs. As it continues to expand its platform, this is not something that will soon disappear.

But with $ 540 million in cash at the end of September and no debt, it has enough to withstand a few years of losses.

Wedbush analyst Michael Pachter expects the company to increase revenue by launching new games. Skillz expects to generate $ 390 million in revenue for all of 2021. It has a “Buy” rating and a target price of $ 25, which is more than twice the current price.

Of the eight analysts covering SKLZ shares, Pachter’s goal is the highest. In general, analysts rate it as “overweight.” average target price $ 16.57 and an average target price of $ 16, well above its current price. Today it is trading at around $ 9.70.

Based on $ 2.65 sales per dollar adjusted EBITDA loss, it should lose $ 147 million based on adjusted EBITDA for the full year 2021, which is more than $ 119.4 million the year before. It’s not the end of the world.

In the first nine months of 2021, it spent $ 1.12 on sales and marketing to generate $ 1 in sales. That’s more than $ 1.06 in the same period last year. This is a 5.7% increase, which would be hard to call a withdrawal of control.

I don’t see a problem with continuing to spend a little more on getting customers. Once he locks these customers in, it’s a great recurring revenue.

As I said in my last article on Skillz, I think Cathie Wood will prove to be a bandit with her Skillz investment. For the rest of you, ordinary mortals, if you can afford to lose 100% of your investment, under $ 10 is a great entry point.

On the day of the publication of Will Ashworth did not hold (directly or indirectly) any positions in the securities referred to in this Article. The opinions expressed in this article are the opinions of the writer which are the subject InvestorPlace.com Guidelines for publication.

Will Ashworth has been writing about full-time investments since 2008. Among the publications in which he has appeared are InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and many others in the US and Canada. He especially enjoys creating portfolios of models that are time-tested. He lives in Halifax, Nova Scotia.

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