What happened
On a down day for most tech stocks, mobile esports platform Skillz (SKLZ +1.48%) was rising as much as 11.5% before settling into a 4.6% gain as of 12:03 p.m. ET.
Skillz reported earnings last night. While the numbers looked ugly in and of themselves, they were actually a little better than expected. Additionally, Skillz repurchased some of its high-yield debt at a big discount. Given how beaten-down shares are, the stock rose on the news.
NYSE: SKLZ
Key Data Points
So what
In the third quarter, Skillz reported a revenue decline of 41% to $60.3 million. That wasn't great, but was a bit higher than analyst expectations. Encouragingly, adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA) losses actually improved by $16 million to a quarterly loss of just -$15.4 million.
Investors probably liked the fact that a tech company is actually getting serious about reining in expenses in this environment, and they probably also liked the fact that Skillz bought back some of its high-priced debt at a big discount. Around this time last year. Skillz took on $300 million in debt with a coupon rate of 10% -- and keep in mind, this is when the federal funds rate was zero.
In the third quarter, Skillz opportunistically repurchased $10.5 million of that debt at just 69.5% of its par value, lowering its debt and interest expenses. Skillz still has $558 million in cash against $289.5 million in debt now, good for a net cash position of $259 million.
Even after today's rise, Skillz' market cap is only $425 million. So that lowly valuation, after stripping out its net cash, is likely why the stock rose even while recording a 41% revenue decline.
Now what
Obviously, with the economic reopening and a cash-strapped consumer, people are playing mobile video games less than they did during the pandemic and are likely gambling less as well.
However, Skillz just released its new NFL QB Shootout mobile game, developed by Play Mechanix, which won a developer contest held by Skillz in conjunction with the NFL over the past year. The game just launched in October, so there is some reason for optimism that the new game, which beat out 200 other contestants, could reignite engagement on Skillz's platform.
With ongoing revenue declines and losses, Skillz isn't for the faint of heart; however, it may have gotten so cheap that bargain-hunting deep-value investors may want to investigate the stock, especially with the launch of the new game as a potential catalyst.
