Mobile Gaming And Digital Payments Will Expand Global Markets

Key Takeaways

• Rapid innovation, reduced acquisition costs, and advanced ad tech integration position Skillz for much faster, sustainable growth and operating leverage than peers anticipate.
  
• Strategic product rollouts and reputation as a trusted platform should boost user engagement, expand market share, and drive superior recurring revenue and earnings quality.
  
• Persistent regulatory, financial, and competitive pressures, coupled with high operating costs and reliance on a concentrated user base, threaten long-term profitability and revenue growth.

Catalysts

Operates a mobile game platform in the United States, Israel, China, Malta, and internationally.

• While analyst consensus credits the $75 million Developer Accelerator program with boosting game innovation and platform offerings, the early pipeline and rapid deployment of funds across multiple genres indicate Skillz could accelerate into a dominant content engine, meaning top-line revenue could ramp far faster and more sustainably than consensus expects.
  
• Analysts broadly agree that optimizing CAC and marketing spend will support margin improvement, yet Skillz's demonstrated ability to grow paying monthly active users at double-digit rates while cutting acquisition costs suggests a uniquely powerful operating leverage that could drive both explosive revenue growth and dramatic improvements in net margins well ahead of expectations.
  
• Skillz's ongoing rollout of instant ACH withdrawals and a seamless integrated gaming arcade positions it to capitalize disproportionately on the expanding global mobile gaming audience, translating into outsized gains in user retention, engagement, and ultimately higher recurring revenue.
  
• Integration between the Skillz platform and Aarki's advanced ad tech-including real-time, privacy-centric user acquisition optimization-uniquely situates Skillz to outperform peers as digital payments and in-app monetization become dominant, supporting both accelerated revenue growth and superior earnings quality.
  
• With increasing cultural acceptance of real-money competitive gaming and a pipeline of proprietary fairness technology and high-profile litigation wins, Skillz is poised to become the trusted gold standard in skill-based mobile gaming, significantly expanding its addressable market and boosting long-term earnings power.

Skillz Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Skillz compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Skillz's revenue will grow by 19.2% annually over the next 3 years.
• Even the bullish analysts are not forecasting that Skillz will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Skillz's profit margin will increase from -76.6% to the average US Entertainment industry of 9.2% in 3 years.
• If Skillz's profit margin were to converge on the industry average, you could expect earnings to reach $14.6 million (and earnings per share of $1.22) by about August 2028, up from $-71.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from -1.8x today. This future PE is lower than the current PE for the US Entertainment industry at 37.1x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.14%, as per the Simply Wall St company report.

Skillz Future Earnings Per Share Growth

Risks

• Skillz's delayed filings of its annual and quarterly reports, non-compliance notice from the NYSE, and ongoing risk of delisting reflect persistent financial reporting and regulatory risks, which could erode investor confidence and restrict access to capital, negatively affecting future earnings growth and share price sustainability.
  
• The company remains deeply unprofitable with a Q2 net loss of $9 million, high cash burn-$8 million used in operating activities in just the latest quarter-and rising research and development expenses that, if revenue growth fails to accelerate meaningfully, will continue to pressure net margins and threaten long-term viability.
  
• Skillz's business model remains highly exposed to escalating customer acquisition and marketing expenses, which at 62 percent of Q2 revenues, highlight potential for continued negative operating leverage, resulting in ongoing losses and suppressed cash flows over the long run.
  
• Intensifying competition from larger, well-capitalized gaming and tech incumbents and platform dependency on iOS and Android app stores means that changes in market dynamics, fees, or policies could erode Skillz's ability to attract users and monetize its platform, acting as a drag on revenue and future profitability.
  
• The company's heavy reliance on a narrow payor base of high-value users, combined with industry gamer fatigue and potential changes in consumer spending priorities, poses a risk to sustaining broad-based user growth and recurring revenue streams, thereby threatening long-term revenue expansion and earnings potential.

Valuation

• The assumed bullish price target for Skillz is $14.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Skillz's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $7.5.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $158.1 million, earnings will come to $14.6 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 12.1%.
• Given the current share price of $8.6, the bullish analyst price target of $14.0 is 38.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.