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Why Skillz Stock Is Soaring Today


What happened

Shares of Skillz (SKLZ 13.00%) are soaring 13.5% higher Tuesday morning on no company-specific news, but it’s a day when the Dow Jones Industrial Average and the S&P 500 are enjoying an up day, too.

The mobile gaming platform’s stock was back over the $1 per share threshold as of 10:51 a.m. ET.

Esports players cheering.

Image source: Getty Images.

So what

The market is betting heavily that Skillz isn’t long for this world. Almost 20% of its shares are sold short, with the stock having lost more than 90% of its value over the past 12 months. While recent macroeconomic events are making a turnaround more difficult for the gaming platform, it has been Skillz’s own missteps along the way that got it into this position.

The growth-at-all-costs strategy it previously pursued meant it was spending money it didn’t have; it was buying growth rather than earning it. And now that it has pulled back on that effort, Skillz financial results are ugly.

Last month, it reported a 22% decline in revenue, including a 16% drop-off in revenue after engagement marketing. It appears Skillz is another company that believed the pandemic era of engagement that it enjoyed during lockdowns would be the new normal afterward, and that’s not proving to be the case.

Now what

Because Skillz has an elevated level of short interest, its stock is going to be more volatile, and today’s movement higher could be the effect of a short squeeze of sorts coming into play. But crashes typically follow, and with the esports stock incurring heavy losses for the foreseeable future, investors would be wise to not play the game.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Skillz Inc. The Motley Fool has a disclosure policy.





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