Delayed SEC Filings And NYSE Non-Compliance Will Constrain Expansion

Key Takeaways

• Persistent regulatory, legal, and compliance challenges are increasing operational costs and restricting market expansion, weighing on revenue growth and long-term margins.
  
• High user acquisition costs, reliance on third-party content, and shifting market trends threaten platform innovation, profitability, and sustained user growth.
  
• Improved operational discipline, strategic innovation, and regulatory resilience position Skillz for enhanced monetization, user growth, and reduced financial risk over the long term.

Catalysts

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

• The company continues to face rising regulatory and legal risks including delayed SEC filings, ongoing NYSE listing non-compliance, and unresolved litigation related to bot fraud; these issues increase ongoing compliance costs and could restrict future expansion into new markets, weighing on both revenue growth and long-term net margins.
  
• Intensifying data privacy regulations alongside a complex patchwork of global user data requirements raises the cost and difficulty of user acquisition and retention, which could further compress margins and hamper overall platform monetization efforts as the business scales.
  
• Skillz remains highly dependent on costly user acquisition and engagement spend-sales and marketing expenses were 62 percent of revenue-while competing in a saturated mobile gaming market, likely resulting in persistent margin pressures and undermining progress toward sustainable profitability and positive earnings.
  
• The heavy reliance on third-party developer content and the slow timeline for new content creation threatens the platform's ability to innovate and stay competitive, risking stagnating user growth and lower player lifetime value, which would further depress long-term revenue potential.
  
• Changes in app store policies or increases in platform fees by major distributors such as Apple and Google, coupled with rising consumer fatigue around pay-to-play models, could drive higher churn and directly limit transaction volumes, causing a material negative impact on both top line revenue and future earnings.

Skillz Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Skillz compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Skillz's revenue will grow by 13.2% annually over the next 3 years.
• The bearish 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 $12.5 million (and earnings per share of $1.04) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, up from -2.0x today. This future PE is lower than the current PE for the US Entertainment industry at 32.1x.
• 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 12.22%, as per the Simply Wall St company report.

Skillz Future Earnings Per Share Growth

Risks

• Sequential and year-over-year growth in both revenue and paying monthly active users shows that Skillz is successfully increasing its top line, which could result in higher future revenues and support an upward share price trajectory.
  
• A significant improvement in adjusted EBITDA loss and reduction in net cash used in operating activities demonstrates strengthening financial discipline and operational efficiency, laying the groundwork for better net margins and eventual earnings improvement.
  
• The launch of new platform features such as the enhanced loyalty program, faster withdrawals, Skillz Arcade, and integration with Aarki's AI-powered mobile marketing could further drive player retention and monetization, positively impacting long-term revenue and user growth.
  
• Strategic investments in developer partnerships through the Developer Accelerator program and ongoing innovation in ad technology with Aarki expand content offerings and market reach, which over time could support stronger revenues and stabilize earnings.
  
• Efforts to resolve compliance, regulatory, and listing issues with the NYSE, alongside a robust cash balance, provide the flexibility and credibility to continue investments and weather short-term setbacks, reducing financial risk and supporting the company's long-term earnings potential.

Valuation

• The assumed bearish price target for Skillz is $7.5, which represents the lowest 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be $135.2 million, earnings will come to $12.5 million, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 12.2%.
  
• Given the current share price of $9.09, the bearish analyst price target of $7.5 is 21.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.