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Here we are. $SKLZ deep dive.
Skillz is a mobile gaming production platform, where they allow game makers to create games on their platform and take a portion of royalties. The great thing about this is, the game being made are competitive and played for money.
Skillz is a mobile gaming production platform, where they allow game makers to create games on their platform and take a portion of royalties. The great thing about this is, the game being made are competitive and played for money.
The structure of the games is this:Players pay money to join a tournament the winner gets a portion of the pot, and the game maker and $SKLZ split the rest. This is where they get revenue. Their platform is completely free they just earn portions from the games played
This leaves a huge moat Imo, if one game they help create becomes extremely popular, they can gain a HUGE portion of revenue. Also, there is a huge diversification between games for them that helps them de-risk the occasional bad game they help create.
I absolutely loved their website. They made is super clear about how they work, what their goals are, and show how gamers and developers can join. The website is clean and good looking, and they had many short, 1 minute videos showing how their platform works.
They also displayed many of their popular games and gave gamers opportunities to go straight to the app store to download them. The only complaint I have is that I could not get information about leadership (Other than names and ranks) on their website.
Again, @chitchatmoney podcast about $SKLZ was great and I loved it. They helped me maneuver my way through the terribly long S-4. I always reccommend checking them out. Their analysis is amazing.
I listened to an older interview with Paradise from 2017. He talked about lots of interesting things, some things you cannot find in an earnings call. Here are some things he talked about in the interview that I found particularly interesting
I don’t know how I feel about it, but every applicant who wants to work at Skillz has to take a timed and graded test as a part of their interview. Paradise says it finds the smartest applicants but it puts me on edge a bit Imo.
Interview questions: “Do you promise to care about our company?”
“If you stop caring about our company do you promise that you will quit?”
Here are 2 things I heard about in the conference call that I loved and want to share:They told a story about a 7-year-old kid who built and brought a game to market on the Skillz systems. That shows how just about anyone who wants to create a game can on this system.
Gaming for Good:$SKLZ has a part of its company that does charity tournaments and donates proceeds to charity. This makes me really like the company and reminds me of conscious capitalism (and $LMND)
Gaming for Good also apparently keeps gamers. The retention from these customers who joined these tournaments is the highest retention rate they have ever had.
FinancialsAfter searching, the financials look good. I did, however, have to look through 150 pages just to find the financials. IMO, the financials seemed a bit messy and the fact that a brand new company has 95% gross margins is kind of crazy.
As of Sept. 2020, no LTD, FCF is negative, and no major customer concentrationNo subscription service and no consistent recurring revenue, but there is recurring revenue in the form of consistent pay-to-play tournaments.
Both co-founders are still at the company today, and Glassdoor has a great ranking for the CEO Andrew Paradise. I would also like to note that Paradise pioneering mobile self-checkout. Imo, that kind of innovation is what I love to see in a CEO.
Checklist$SKLZ got a 13 on my research checklist, which is not in my investable range yet, but after some time in the market, if it beats expectations and get a positive and increasing FCF it could easily become an investable stock for me.
https://docs.google.com/spreadsheets/d/1_WA2Mp38AkfewIfohy2Y8jAxzrZul3CUArB-cwKyZz8/edit#gid=0
Bull ThesisOn their S-4, they said that only 10% of users have been monetized by pay-to-play tournaments. If they increase that number by making the games more enjoyable to be on for extended periods of time (which they already do at 65 minutes per DAU), they can really grow
65 minutes per DAU is about double that of the average of the mobile gaming sector. Also, on the conference call, the management team said that the top 1% of their users spend an average of 4 hours a day playing and interacting on the platform
Bear ThesisThe majority of their revenue comes from 3 games, Dominoes, Solitare, and Billiards. All of those are relatively older person games. As they pass on, the most popular games they have could diminish along with their users.
I believe that since they are only a platform, they will be able to avoid it by just creating more games for a younger generation and one of those may become the new popular games.$SKLZ is a platform for creating games, not those specific games, this allows for new creation
If they leaned into sports betting I would also be concerned. Sports betting imo is a low margin, few winner industry. I think that there won’t be many winners in the industry and I wouldn’t want $SKLZ to take that risk.
My Take I’m always a lover of charity and conscious capitalism, so that appeals to me. It automatically gets me to like this company. This, along with decent management really has me liking the company culture here, which is very important to me.
I also like the style of the platform and diversification. Simply put, Imo, this company is too young and I haven’t seen enough of its performance. Because of this, it is too risky for me. I also worry about where this company might try to go.
If Skillz tries to go into sports betting, I believe that they could ruin a great company with a great platform. I think, if they find an amazing app that dramatically boosts revenue growth, I may invest before I see the financials get stronger.
I'm going to stay off of this, for now. It doesn’t pass my checklist yet, but in a year or so if it can beat expectations and prove that it is a big player in the esports/mobile gaming industry I may dip a toe in. This is definitely staying on my watchlist, however.
@bubblingwhale here you go!
