Why Skillz Stock Popped Today | The Motley Fool

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What happened

Shares of mobile-gaming platform provider Skillz (NYSE:SKLZ) popped on Friday, and shareholders may have the market to thank for this. All of the major stock indexes were firmly in the green as of 11:45 a.m. EDT, likely contributing to Skillz’s 6% gain. However, it’s also possible investors are still digesting the press release the company issued yesterday, which shared news of an exciting new game launch.

So what

Based in Argentina, Etermax is the game developer behind the globally successful trivia game Trivia Crack. Not only is this game played in 180 countries, but it also boasts 150 million annual users. Compare that with the mere 2.4 million monthly active users on Skillz’s platform. It’s easy to see why investors are excited that Trivia Crack will launch on Skillz sometime in the near future. 

A person plays a mobile game while laying on their bed.

Image source: Getty Images.

As a reminder, Skillz’s customers are game developers like Etermax. The company provides a software kit for launching the game on the platform, and also offers services like game-data analytics, payment processing, and more. Users can pay to play and win cash payouts. The game developer generates revenue by taking a cut of the entry fees. Skillz takes a cut in exchange for its services to the game developers.

Now what

Long term, it’s important for Skillz to win over more game developers like Etermax. For perspective, just two game developers (Tether and Big Run) accounted for a whopping 42% of Skillz’s revenue as of the most recent quarter. We call that “customer concentration risk” because there’d be a big drop in revenue if the company lost either game developer. But this risk is mitigated by attracting more developers to the platform over time. Skillz certainly still has a ways to go, but yesterday’s news is a good step in the right direction.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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