In this Left Brain Thinking episode, host Chuck Jaffe interviews Janice Quek, senior analyst at Left Brain Investment Research, about Skillz (ticker SKLZ), a mobile competitive gaming platform. Janice explains Skillz’s unique business model that democratizes esports by providing a backend tournament‑matching system for developers and allowing players to compete for cash or virtual rewards. She highlights strong traction: ~15 million registered players, ~9,000 partner studios, a $1.6 billion marketplace value, and over 2 billion tournaments run annually, with revenue growing >90% year‑over‑year and 95% of that as gross profit. The discussion then turns to Left Brain’s three‑tier rating system (green, yellow, red). Skillz receives a yellow light because, despite its growth and market opportunity in the $160 billion gaming industry, its profitability metrics (adjusted EBITDA, free cash flow, net income) remain weak due to high platform development and sales‑and‑marketing spend. Janice outlines the trigger for upgrading to a green light: clearer path to profitability and sustained market‑share leverage. The episode concludes with standard disclosures and promotion of upcoming Left Brain events.
Chapters
Welcome to Left Brain Thinking, where creative investment ideas meet logical analysis. That's the hallmark of Left Brain Investment Research, where the analysts are looking for growth companies with the potential to double in 2 to 3 years and high-yield bonds with the potential for dramatic price appreciation. And today we're going back to what, for the team at Left Brain, is their bread and butter: high-growth stocks. Joining me now, it's Janice Quek, senior analyst based in Singapore for Left Brain Investment Research. Learn more about her and the firm at leftbrainir.com and find out about the latest installment in Left Brain's series of Fortune Makers Zoom events focused on wealth builders. Those are small-cap and mid-cap stocks with the potential to grow into major players in their industries. That's scheduled for April 8th. Janice Quek, great to have you back on Left Brain Thinking.
Hi, Chuck. Happy to be back on the show.
We are heading back to high growth stocks and you've got one in mind today that, well, it's fun because its industry is fun and it's fun because it's got the potential for high growth as well. And it's Skillz, ticker SKLZ. This is a video game platform. I know you like the video game industry, but still we wouldn't be talking about Skillz if there wasn't something to make it stand out. —right?
Yes, Chuck. It's not your typical video game business. They're not game publishers. The company is a leading games platform for users to find competitive mobile games and play against another player for prize money or virtual reward. So many of our listeners might have heard of esports, which is competitive video game, and that's essentially what Scaled provides for gamers. On the other end, you have developers and they use the platform to add competitive play software features in their game. And so these games that they publish, they run as tournaments, and the Skillz platform has a backend tournament matching and management system to run these tournaments and allocate prizes to winners. And the tournaments can be one-on-one, in teams, or large-scale live events that can be broadcasted or streamed like any other competitive sport. The platform, Chuck, is very popular. It has 15 million registered players globally and about 9,000 game studios that already use Skillz to manage their game tournaments. So definitely high engagement and traction on the Skillz platform there.
Esports is such a hot area, so what makes Skillz stand out to you compared to the competition? Because when I look at an industry like esports, yep, there's a lot of interest, but nope, they're not all going to make it.
Yeah, you raise a very interesting question. I think one of the outstanding things about the company is its business model, which we think explains a lot of its growth. For the skills business, it is unique because it reimagines the video game business model. So the traditional model for an aspiring video game developer who has a creative idea for a game is to go to one of the top game development studios where they have the resources to create and publish and bring it to market. But game development is a risky business because you never know how much traction your game can get. But the large studios have the financial tolerance for it, and that leaves the small game studios to have to make less risky decisions. So what Skillz does with its platform, it democratizes the process by enabling any developer to produce a game and then be able to start monetizing it quickly by running tournaments for it. And the players, they will pay a fee to play in a game tournament. The developers, they get a percentage of the fee, and Skillz takes a cut. Running tournaments and matching players and maintaining the system is a costly and time-consuming business, and game studios typically do not want to run the esports competitions. They just want to create the game. So the Skillz format is really an alternative, low-cost, low-risk model that benefits all the different stakeholders. The other important thing that I wanted to bring up is that for most mobile game developers, they monetize their games using in-app ads or in-app purchases. But that creates a lot of friction for the user experience. And you compare that to the Skillz model where players are engaged and incentivized because they're competing with one another and they're having fun playing a game. Players are more engaged and they want to continue playing. So we think that this business model is very unique And it's working. The business is attracting players and developers. The company has been able to manage about $1.6 billion already of game growth marketplace value. That's the total value of games played on the platform. And Skillz, to go back to their monetization model, they take a percentage of that. And there are more than 2 billion tournaments that run on the platform each year. Revenue grew more than 90% last year for Skillz itself. And 95% of that was gross profit. So these are some of the interesting things about the company that we really like— the business model, how it's unique, how they monetize it, and how it's working.
At the same time, for all the things that you like, I'm familiar with how Left Brain evaluates companies, and you are not full-blown pedal to the metal on this stock. This is not a complete win. There are some things for you that are holding you back just a little bit, aren't there?
Yes, you know, at Left Brain, we have a 3-level rating system that describes how we feel about the stock. At the beginning of each Left Brain report, we will indicate our rating on the business, and the 3 ratings are green light, yellow light, and red light. Green light means we see many outstanding traits through the Left Brain lens, which is a set of criteria that we evaluate the business. If it's green light, we like it as a potential investment. If it's a yellow light It means the stock looks good and we'll add the ticker to our list for more research and monitoring if we have the capacity. And red light means there's no chance probably that we'll continue coverage. For Skillz, we didn't rate it a green light. We rated it a yellow light. And the key reason was because of its profitability metrics. For a stock to make a green light, we usually want to see companies profitable or very close to becoming profitable in at least one or two metrics like adjusted EBITDA, free cash flow, or adjusted net income. But being so early in the game, Skillz is spending a lot on the platform development side of things, and sales and marketing takes up a lot of its expenses because it wants to try to scale quickly and gain market share. It wants to take advantage of being a first mover. So the investments are important for its long-term growth, but it also increases the financial risk on the company. These are some areas that are more concerning for us that holds us back on giving it a green light.
So is there something that becomes the trigger for you that you're looking for that will convince you?
Yep, we're full go. I think for Skillz specifically, we like many aspects of the company that I mentioned earlier. You know, they have a large market opportunity. It's a— the gaming industry is $160 billion industry. They have a great competitive position. They have a unique business model. But what is holding us back is the profitability metrics. For scale, we want to be able to see that the company is closer to becoming profitable and gaining leverage from scaling. When we see more of that and steady market share growth, we think we'll be more comfortable with giving it a green light in the future. Janice, great stuff.
Thanks so much for joining me to talk about it.
Thank you, Chuck.
Left Brain Thinking is a joint production of Left Brain Investment Research and MoneyLife with Chuck Jaffe. These conversations are not personalized investment recommendations but are designed to engage your brain. Please do your diligence before making any financial transaction. I'm your host, Chuck Jaffe, and you can learn more about my weekday podcast on your favorite podcast app or by checking it out online at moneylifeshow.com. Thanks to my guest, Janice Kwak, senior analyst at Left Brain Investment Research. Learn more about the firm and its analysis at leftbrainir.com. Ir.com, and they're on Twitter at LeftBrainIR. And don't forget to head to the website for details on their upcoming Fortune Makers Zoom series event scheduled for April 8th. Left Brain Thinking is available every Wednesday. Plan to put your left brain thinking cap on with us each week by subscribing via your favorite podcast app. Until next time, stay safe, everybody.
