We are short Skillz, Inc. (Nasdaq: SKLZ) because its top games appear to be stagnant to declining, leading us to believe its revenue projections are farcical. Our research, including conversations with former employees, employees of Skillz’s two largest developers, and independent third-party app download data, all show us that the growth projections SKLZ and its SPAC sponsor continue to present to investors are entirely unrealistic. We found that SKLZ’s top three games, representing ~88% of its revenues, had already plateaued by Q3 2020. What’s worse is that SKLZ growth story is falling apart in Q1 2021. While SKLZ is projecting 12.3% sequential revenue growth and 61.4% year-over-year (“YoY”) revenue growth in 1Q21, third party app data shows that SKLZ’s total installations are down double digits through the first two months of 1Q21. While SKLZ may very well eke out its numbers for Q4 2020, concerned investors should be seeking answers regarding Q1 2021 guidance on Wednesday’s earnings call. SKLZ has a history of announcing deals/partnerships which have historically amounted to very little, or nothing at all. The latest of which was SKLZ’s conveniently-timed announcement of its purported partnership with the NFL, which pumped its stock 25% to all-time highs just days before filing an S-1 allowing insiders to sell millions of shares of stock at these inflated prices. Smart money seems to have figured out very quickly that, like so many of SKLZ past deals, this NFL “partnership” won’t amount to much, if anything at all – likely having seen what we saw:
• Skillz’s developer portal showed no evidence of an NFL deal or contest being held.
• A site search of nfl.com does not even register the term “Skillz” unless we count slang used in the message boards.
• We were unable to find any reference to this purported partnership from the NFL’s side, other than SKLZ press release itself.
• Showing a complete lack of skill, an email inquiry (sent to the email address referenced in the PR) from our developer profile on Skillz platform bounced back to us, saying the email account did not exist.
This appears to be another SPAC preying on retail investors by obtaining a ridiculous valuation for the SPAC merger based on self-serving projections. As we all know by now, traditional IPO prospectuses require historical financials and rarely include any projections, as forward-looking statements protections do not apply to them. However, forward-looking statements are protected in SPAC proxies, allowing them to use whatever projections they want for investor presentations and even to determine a valuation for the business. This allowed SKLZ to obtain a SPAC valuation of $3.5 billion – based on a multiple of projected 2022 revenue – while its most recent private equity valuation was only $725 million on August 30, 2019, almost exactly one year before the SPAC. These aggressive projections did not sit well with all employees at SKLZ. Former employees we spoke to commonly referred to SKLZ numbers as “smoke and mirrors” and SKLZ recently settled a lawsuit with Eric Cooper, Skillz’s former Head of Finance and Administration, who claimed he was fired for not going along with CEO Andrew Paradise’s unattainably aggressive financial projections.
If none of what we’ve said matters to you, you can always purchase independent third party data from a number of respected data providers and you will see what we see coming in 1Q21. It’s just a pretty little piece of ice in the water until you hit it and find out it’s an iceberg.