Skillz Goes Public, Latest Gaming Name Born Out of SPAC Deal

Posted on: December 17, 2020, 10:25h. 

Last updated on: July 6, 2021, 04:24h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Skillz Inc. (NYSE:SKLZ), a mobile gaming and esports provider, is now a publicly traded entity. It becomes the latest firm to join those ranks following a merger with a special purpose acquisition company (SPAC).

Skillz IPO
Mobil games provider Skillz went public today. It’s the latest successful SPAC deal in the gaming space. (Image: Venture Beat)

In September, San Francisco-based Skillz announced plans to merge with Flying Eagle Acquisition Corp. (NYSE:FEAC) in a transaction valuing the gaming outfit at $3.5 billion, or 6.3x 2022 revenue. Flying Eagle was created by Harry Sloan, Jeff Sagansky, and Eli Baker, who were behind Diamond Eagle Acquisition Corp., the blank check company DraftKings (NASDAQ:DKNG) used as a vehicle to go public in April.

Unlike DraftKings or the soon-to-be-public Golden Nugget Online Gaming (GNOG), Skillz doesn’t operate online casinos or sportsbooks. It does, however, offer esports games and tournaments with real money prizes. The company has another revenue stream by giving game developers an alternative to the in-app purchase model.

Skillz has pioneered the future of the gaming industry, enabling developers to monetize their content five times better than ads or in-app purchases,” according to the company.

Skillz has which has 2.6 million active users. It resonates with players because it matches competitors based on acumen, ensuring a gamer new to the platform isn’t going up against an experienced, highly skilled rival. That’s a departure from the traditional daily fantasy sports (DFS) model. In that model, many smaller participants complain they’re nothing but “bait” for “sharks” that use DFS to make a living.

Big Growth Potential

Pay enough attention to emerging online gaming companies and there’s usually some chatter about the total addressable market (TAM). For those operating in the iGaming and sports wagering industries, the TAM conversation is relevant, because forecasts largely revolve around states legalizing those activities.

Skillz is primed because its platform is currently home to just small slices of the 2.7 billion mobile gamers and 10 million developers around the world. The company estimates the mobile gaming market will more than double in value to $150 billion by 2025. This far exceeds even the highest estimates for US internet casinos and sports betting.

There are also lucrative opportunities for the newly public company outside the US. In mobile gaming, international markets are growing four times as fast as North America, but Skillz currently generates less than 10 percent of its revenue from regions outside North America.

The company can capitalize on those growth avenues because it’s financially healthy. It came to market with $250 million in cash and no debt after landing $158.5 million in financing from investors Fidelity, Franklin Templeton, Neuberger Berman, and Wellington Management.

SPAC Fever Continues

Blank-check mania is an obvious 2020 investment theme, one that’s expected to extend into next year. As of Dec. 8, 217 SPACs went public this year, raising a combined $74 billion, and plenty of those names announced plans to focus on mergers involving gaming assets.

The $690 million raised by Flying Eagle in its IPO earlier this year puts it in the upper echelon of 2020 SPAC offerings.

For now, investors appear enthusiastic, as Skillz stock is higher by five percent in midday trading.