When we look back at past market mania’s we can see obvious signs of the bubble. The companies in the first Dot Com Bubble that preferred to be valued on their web traffic rather than their revenue. The subprime mortgages of the Global Financial Crisis that almost brought down the US economy. And now, as we look back on the past few years, we can see obvious (in hindsight) signs of the 2020/2021 COVID bubble. This article looks at a company that we’d never heard of, but appears to be a classic example of the 2020/21 bubble: Skillz (NYSE: SKLZ).
Skillz’s share price is down 99% from its high in February 2021. At its peak, it had a market value of $16 billion. Today, it is worth just $250 million. And even that may be generous.
The company manages an online platform that hosts multiplayer games and tournaments. Some games are free, others require entry fees. Skillz takes a cut of those fees. And when it went public, the numbers looked great. $229 million in revenue, up 92% from the year before, with 95% gross margins. Cathie Wood’s Ark Invest bought shares and the Motley Fool initiated a buy recommendation.
But as this article explains, there were red flags everywhere. From the management to the product, investors needed to look beyond the headline and dig into what they were actually buying. A good reminder of some common red flags for those of us that like investing in individual stocks.
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