Shares of mobile games developer Skillz Inc. (NYSE:SKLZ) are lower by almost 15 percent in late trading. That’s after Wolfpack Research issued a scathing report on the newly pubic company while revealing it’s shorting the stock.
Wolfpack’s report comes ahead of Skillz fourth-quarter earnings report due out Wednesday. This is the company’s first since becoming a standalone public company.
The company went public last December following a merger with a special purpose acquisition company (SPAC). That SPAC, Flying Eagle Acquisition Corp., was founded by Harry Sloan, Jeff Sagansky, and Eli Baker, who also created Diamond Eagle Acquisition Corp., the blank check company DraftKings (NASDAQ:DKNG) entered into a reverse merger with to go public last April.
Part of the allure with Skillz is impressive user growth and total addressable market (TAM) estimates. But Wolfpack doesn’t agree.
“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,” says the due diligence firm.
Skillz previously said there are 2.7 billion mobile gamers and 10 million developers around the world, and that the global mobile gaming market could be worth $150 billion by 2025. However, Wolfpack called the gaming company’s revenue projections “farcical.”
Doubts About NFL Deal
Last month, Skillz announced a deal with the NFL, whereby developers will have the opportunity to develop a mobile, football-themed game.
News of the accord sparked an epic two-day rally in Skillz stock, sending it to its all-time high of $46.30 on Feb. 5. Wolfpack Research is expressing concerns regarding the efficacy of the NFL agreement, noting “Skillz’s developer portal showed no evidence of an NFL deal or contest being held,” and that NFL.com features no mention of the term “skillz” except for slang references to the properly spelled “skills.”
“SKLZ has a history of announcing deals/partnerships which have historically amounted to very little, or nothing at all,” according to Wolfpack. “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.”
Since reaching the aforementioned high on the back of the NFL news, shares of Skillz are off 46.44 percent.
Skillz Stock Has Supporters
Wolfpack’s bearishness on Skillz arrives just weeks after the GameStop saga — one that unearthed pent-up aggression by retailer traders aimed at short-sellers.
In fairness to smaller Skillz shareholders, the stock has the support of some well-known growth investors, and three of the five sell-side analysts covering it are bullish on the name. The consensus price target is $31.20, implying upside of almost 35 percent from current levels.
Conversely, Wolfpack lays out a bear case for the stock that includes insight from former employees, though it doesn’t mention if they are disgruntled or not.
“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,” said the research firm.
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