Shares of esports video game platform Skillz (NYSE:SKLZ) were down over 6% in trading as of 12:25 p.m. EDT Thursday. There was no news to prompt the sharp move lower, but shares had jumped higher earlier in the week on no news as well. This continues to be a volatile battleground stock with lots of raving fans and lots of detractors, so big daily moves like this aren’t out of the norm.
When it went public via a special-purpose acquisition company (SPAC) late in 2020, Skillz stock was off to the races and quickly doubled in value in January. Since then, the fast-growing esports company has moderated, and shares are currently about even with where they were when it completed its go-public proceedings.
There’s a lot to like about Skillz stock. Management is estimating revenue growth of about 63% this year, it recently announced it’s acquiring marketing company Aarki for $150 million in cash, and former Airbnb (NASDAQ:ABNB) head of investor relations Ian Lee was hired to be the Skillz CFO.
But plenty of negativity has poured in as well, especially surrounding Skillz’s market cap of over $8 billion. That values the company at nearly 22 times current-year expected sales. An estimated 16% of Skillz shares are sold short, meaning some traders are betting against the company and would benefit from a further decline in share price.
It’s undeniable that Skillz is growing quickly, and the company wasted little time putting some of the $613 million in cash and equivalents it had on hand (as of the end of March) to work with the Aarki purchase. That acquisition should add to the esports company’s growth outlook for this year.
And though Skillz is operating at a steep loss right now, that’s not unusual for a growing tech company that is funneling lots of cash into sales and marketing to maximize its expansion. With a gross profit margin of nearly 95% during the first quarter of 2021, though, this is poised to be a highly profitable company down the road.
Nevertheless, given its premium price tag and lots of traders betting against it, Skillz stock will no doubt remain a highly volatile investment in the short term. But for those investors eyeing the long-term potential, the wild day-to-day stock moves are of little concern.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.