What happened
It's going from bad to worse at Skillz (NYSE: SKLZ). The mobile gaming platform's stock tumbled Friday morning, and was down by 10.1% as of 12:10 p.m. ET. While there was no company-specific news to explain the drop, the Dow Jones Industrial Average and S&P 500 have resumed their own declines, and were off by 1.1% and 1.4%, respectively, at that point in the session.
As fears of a hard economic landing grow, the prospects for a big pullback in digital advertising increase, making it unlikely that Skillz will reverse its downward trajectory anytime soon.
Image source: Getty Images.
So what
Skillz is in a bind. Its revenues are falling, losses remain substantial though slightly narrower, engagement is declining, the number of paying monthly active users is falling, and management has reduced its full-year guidance. New product development has stalled, too.
The company placed a lot of hope on its $162 million acquisition of global demand-side advertising platform Aarki last year to help drive significant efficiencies in user-acquisition costs, but the integration of the technology-led marketing platform has only increased its costs so far.
If there is a dramatic scaling back in demand for digital advertising, there might be little Aarki can do to stop the hemorrhaging currently underway at Skillz.
Now what
Online gaming got a huge boost during the lockdown phase of the COVID-19 pandemic, but a reopened economy has upset the growth plans of many businesses. With people spending more leisure time enjoying out-of-home entertainment again, and with more workers returning to offices, they have less time available for gaming.
NPD Group says overall spending on gaming tumbled 13% year over year in the second quarter, and it was mobile gaming that led the way down: Spending in that category declined by 12%. While spending on mobile gaming is still higher than when it was before the pandemic, that's little consolation to Skillz shareholders. The esports stock now trades at just $1.11 per share -- a 90% loss of value from the price where it began trading following its SPAC merger in December 2020.
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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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