News Flash: 8 Analysts Think Skillz Inc. (NYSE:SKLZ) Earnings Are Under Threat

Market forces rained on the parade of Skillz Inc. (NYSE:SKLZ) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously.

After the downgrade, the eight analysts covering Skillz are now predicting revenues of US$399m in 2022. If met, this would reflect a satisfactory 3.8% improvement in sales compared to the last 12 months. Losses are supposed to balloon 55% to US$0.69 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of US$549m and losses of US$0.48 per share in 2022. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for Skillz

The consensus price target fell 25% to US$11.08, implicitly signalling that lower earnings per share are a leading indicator for Skillz's valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. Currently, the most bullish analyst values Skillz at US$25.00 per share, while the most bearish prices it at US$9.00. With such a wide range in price targets, the analysts are almost certainly betting on widely diverse outcomes for the underlying business. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that Skillz's revenue growth is expected to slow, with the forecast 3.8% annualised growth rate until the end of 2022 being well below the historical 52% p.a. growth over the last three years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 12% annually. Factoring in the forecast slowdown in growth, it seems obvious that Skillz is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at Skillz. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Skillz's revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Skillz going out to 2024, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.