This update will provide recent news and events that can help SKLZ to turn around, and potentially reach my target price set out in my original analysis (found here).

Recent SEC Filings:

Over the past couple of months, there have been a tremendous number of filings between SKLZ and the SEC, however, I have narrowed down these filings by finding/presenting you with the 3 most important filings over the past 4 months.

Q2 2021 Financial Report (10-Q):

On August 3^rd, 2021, SKLZ released their Q2 2021 earnings report, which had some points that I would like to highlight in this section.

Firstly, SKLZ reported their 22^nd quarter of consecutive growth, this is expected as it is a young, high-growth prospect, however, their growth rate is very high. SKLZ was able to grow its revenues and profits by a factor of 52%, however, they reported a greater net loss and lower EBITDA. Overall, there is a lot of revenue growth however none of this growth is being transferred into SKLZ pockets, which is normal for a high growth stock but is somewhat worrying. I am looking for them t turn this trend around in the next couple of quarterly reports and start to decrease their net losses or else I will exit the position.

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Registration of Securities (S-1):

On August 16^th, 2021, SKLZ submitted/completed their S-1 filing, which means that they registered more Class A common shares. In this filing, SKLZ noted that they registered 4,401,615 shares at an offering price of $11.88, which diluted previously held shares by roughly 1%. These shares were granted to SKLZ CEO (Andrew Paradise) as a result of their “2020 Omnibus Incentive Plan”.

CEO Compensation (Omnibus Incentive Plan) 8-K:

On September 14^th, 2021, SKLZ announced that they granted (not vested) Andrew Paradise a total of 16,119,540 Performance Stock Units (PSU’s) to be earned over the next year. Each PSU can be vested for 1 Class A common stock and is a part of SKLZ’s “2021 Omnibus Incentive Plan”. The 2021 and 2020 Incentive plans are nearly identical and follow the following framework.

I think this is good news for shareholders as Andrew is heavily incentivized to pump the share price and keep it there for 60 consecutive days (which is part of the arrangement). It will be interesting to see what Andrew and SKLZ do over the course of the next year to achieve this, and it should be very beneficial for shareholders.

This plan was also mentioned with some additional details in my original analysis found here.

Appointment of an Officer 8-K:

On September 23^rd, 2021, SKLZ appointed Stanley Mbugua as the Chief Accounting Officer (CAO) to start on September 27^th, 2021. Prior to joining SKLZ, Mr. Mbugua was VP & CAO of Rimini Street, which is an enterprise software company, for 4 years. Prior to this Mr. Mbugua was the Senior Director and Corporate Controller at Lattice Semiconductor for 2 years.

Recent News:

Expansion into India:

SKLZ has talked about their plans to expand into India for the better part of a year. In a recent interview with CNBC, Andrew Paradise stated that they are looking to expand into the Indian gaming market by Q4 of this year (2021). This is big news as KPMG has estimated that the Indian gaming market is expected to grow by 113% over the next 3 years (by 2025). Furthermore, KPMG expects the online and mobile gaming segments to grow the quickest (182% over the next 3 years). This explosive growth represents a huge opportunity for SKLZ in India, and if they are able to penetrate even a small percentage of this market it could be lucrative for their share price.

Potential explanations for the 60% decrease in share price:

In this section, I will explain factors that contributed to SKLZ’s declining share price that I mentioned in my previous analysis, as well as factors that I did not mention in the analysis that had negative effects on their share price.

Dilution:

In my previous analysis, I highlighted the fact that SKLZ has a variety of ways in which it can dilute its stock. However, recently their redemption of public warrants has caused large dilution and has caused investors to panic. The redemption of these warrants in combination with their other forms of share dilution has all led to the decrease in SKLZ’s share price.

Cathy Wood:

Another reason for their decrease in July can be attributed to Cathy Wood selling a somewhat large portion of her SKLZ holdings. In July Cathy sold over 1M shares which represented nearly 16% of her total holdings in SKLZ. The reason that this had such a large influence on the share price of SKLZ is that it initially gained popularity via Cathy and her conviction of the stock. However, many investors saw this sale as Cathy not believing in it anymore, which caused them to exit their position(s).

Final Thoughts:

I think that SKLZ is headed in the right direction when looking at its recent partnerships, investments, and buyouts. I think that their strategies behind these moves (and their possible expansion into India) can serve their business very well, and set them up for future success, however, there are some current factors (like their dilution and financial shortcomings) that have restricted their share price from showing these successes.

In terms of a valuation, I would have to use the same valuation that I achieved through my comparable analysis in my original analysis, which found the fair value for SKLZ to be $25.31. There are some flaws with this valuation, and there is more to be added, however, I stick by my original valuation and think that there is a potential reversal coming in the next couple of months.