Skillz vs. Playtika: Which Video Game Stock is a Better Buy?

: PLTK | Playtika Holding Corp. News, Ratings, and Charts

PLTK – Though people are gradually returning to outdoor activities, the demand for video games, which has grown significantly amid the pandemic, is not expected to decline. Rising competition in the industry has been compelling companies to develop and add captivating games to their platforms to maintain their user bases amid the availability of increasing entertainment options with the economic reopening and elimination of social distancing mandates. So, though both Playtika (PLTK) and Skillz (SKLZ) are well-positioned to capitalize on the industry tailwinds, let’s find out which of these stocks is a better buy now.

Playtika Holding Corporation (PLTK) and Skillz Inc. (SKLZ) are two prominent players in the video gaming industry. PLTK is an Israel-based digital entertainment company that develops, publishes, and distributes its mobile games to customers worldwide through various web and mobile platforms and its proprietary platforms. SKLZ is a San Francisco concern that delivers a mobile game platform that hosts tournaments and competitions, serving and connecting game developers and end-users worldwide.

Expanding their monthly active user bases amid the pandemic has helped companies in the video game industry generate huge profits. The launches of Microsoft Corporation’s (MSFT) Xbox Series X/S and Sony Corporation’s (SONY) PlayStation 5 in late 2020, along with Netflix, Inc.’s (NFLX) expansion plans into video games, has been incentivizing companies to develop captivating video games to compete and maintain their user bases in response to peoples’ desire  to return to outdoor entertainment alternatives. The global mobile gaming industry is projected to grow at an 11.5% CAGR to $153.50 billion by 2027. Rising investor optimism in the industry is evident in the Global X Video Games & Esports ETF’s (HERO) 14.6% returns over the past nine months. So, both PLTK and SKLZ should benefit from the industry tailwinds.

In terms of their past three months’ performance, SKLZ is a winner with marginal gains, versus PLTK’s negative returns. But, which of these stocks is a better pick now? Let’s find out.

Latest Movements

On March 11, 2021, PLTK took on a seven-year $1.90 billion term loan, increased its revolving credit facility with a new five-year maturity to $600 million, and consummated its previously announced $600 million senior notes offering. The company intends to use borrowings under the term loan  and the net proceeds from the notes offering to repay its existing $2.38 billion term loan and for other general corporate purposes. The move should  generate significant savings, reducing its annual cash interest payments by more than  $80 million, which should benefit its net income, EPS, and free cash flow in 2021.

On July 7, 2021, The Klein Law firm announced the filing of a class-action lawsuit against SKLZ, alleging that the company had made materially misleading statements to the market. The three games that comprised the majority of SKLZ’s revenue had been suffering a significant decline since November 2020, and this condition was allegedly misrepresented by SKLZ’s revenue recognition policy. Such allegedly unrealistic growth projections, declining downloads of its popular games, and the provision of incentive bonus payments to its gamers that would ultimately inflate the company’s revenue, are likely to make investors lose confidence in the stock now.

Recent Financial Results

PLTK’s revenue for its fiscal first quarter, ended March 31, 2021, rose 19.6% year-over-year to $638.90 million. The company’s income from operations came in at $130.30 million, up 15.1% from the prior-year period. However, its comprehensive income has been reported at $25.70 million, which represents a 23.3% year-over-year decline. Its EPS came in at $0.09, which represents almost no change year-over-year. As of March 31, 2021, the company had 963.80 million in cash and cash equivalents.

For its fiscal first quarter, ended March 31, 2021, SKLZ’s revenue increased 92.1% year-over-year to $83.68 million. The company’s gross profit came in at $79.42 million, up 94.7% from the prior-year period. However, its loss from operations has been reported at $51.47 million, which represents a 237.9% year-over-year rise. While its net loss increased 245.3% year-over-year to $53.59 million, its loss per share increased 166.7% year-over-year to $0.16. The company had $612.58 million in cash and cash equivalents as of March 31, 2021.

Past and Expected Financial Performance

PLTK’s revenue and EBITDA have grown 26% and 5%, respectively, over the past year. The company’s EPS has declined at a 60.5% CAGR over the past year.

Analysts expect PLTK’s revenue to increase 10.5% year-over-year in the current year and 7.5% next year. Its EPS is expected to increase 68.6% in the current year but decline marginally next year.

In comparison, SKLZ’s revenue and EBITDA have increased 98% and 275.6%, respectively, over the past year. The company’s EPS has grown  497.3% over the past year.

Analysts expect SKLZ’s revenue to increase 63.4% in the current year and 47.3% next year. However, its EPS is expected to remain negative both in the current year and next year.

Profitability

PLTK’s trailing-12-month revenue is 9.2 times  SKLZ’s. PLTK is also more profitable, with a 24.4% EBIT margin versus SKLZ’s negative value.

Also, PLTK’s levered free cash flow margin and ROTC values of 23.4% and 22.5%, respectively, compare favorably with SKLZ’s negative values.

Valuation

In terms of non-GAAP forward P/E, PLTK is currently trading at 17.31x, compared to SKLZ’s negative 31.69x. SKLZ’s 15.97x forward EV/Sales is 280.2% higher than PLTK’s 4.20x.

Also, in terms of trailing-12-month Price/Sales, SKLZ’s 18.37x is 395.1% higher than PLTK’s 3.71x.

POWR Ratings

While SKLZ has an overall F grade, which translates to Strong Sell in our proprietary POWR Ratings system, PLTK has an overall B grade, which equates to Buy. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

PLTK has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. PLTK’s 15.75x  forward EV/EBIT value is 14.8% lower than the 18.48x industry average. However, SKLZ’s D grade for Value reflects its overvaluation. The company has a 16.66x forward Price/Sales, which is 786.8% higher than the 1.88x industry average.

In terms of Quality, PLTK has been graded a B, which is consistent with its higher-than-industry profitability ratios. PLTK’s 22.5% trailing-12-month return on total capital is 554.1% higher than the 3.4% industry average. In comparison, SKLZ has a D grade for Quality, which is in sync with its negative return-on-total-capital value.

Of 24 stocks in the Entertainment – Toys & Video Games industry, SKLZ is ranked #24, while PLTK is ranked #1.

Beyond what we’ve stated above, our POWR Ratings system has also rated both PLTK and SKLZ for Growth, Momentum, Stability, and Sentiment.

Get all SKLZ ratings here. Also, click here to see the additional POWR Ratings for PLTK.

The Winner

In-game purchases and the emergence of 5G technology should drive the performances of  PLTK and SKLZ. However, lawsuits and certain allegations surrounding SKLZ’s operations we think make PLTK, with higher profitability and lower valuation, a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Entertainment – Toys & Video Games industry.


PLTK shares were unchanged in after-hours trading Friday. Year-to-date, PLTK has declined -27.10%, versus a 16.13% rise in the benchmark S&P 500 index during the same period.


About the Author: Sweta Vijayan


Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
PLTKGet RatingGet RatingGet Rating
SKLZGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


:  |  News, Ratings, and Charts

E + E = Record Stock Market Highs

The stock market (SPY) is quite simple sometimes. When the Economy is improving, so too does corporate Earnings which begets a bullish environment. The recent proof of strength in these areas helped stocks shake off the recent slumber with shares pushing to new all time highs once again. Let’s get more in-depth on these catalysts including a game plan for how to outperform in the days and weeks ahead. Read on for more...

:  |  News, Ratings, and Charts

10 Best POWR Ratings Stocks

Investors love using our POWR Ratings to track down stocks likely to outperform the S&P 500 (SPY). However, on any given day there are over 1,300 that are Buy rated. This leads customers to reach out to us to discover which are the BEST of these stocks. Today I share the answer including details on the current 10 best POWR Ratings stocks. Get the rest below...

:  |  News, Ratings, and Charts

3 Buy-Rated Stocks in A-Rated Industries

Our POWR Ratings system makes it easy to find stocks that are more likely to outperform. Investors just need to look for stocks that have an overall grade of A or B. But, you can go a step further, and only invest in A or B stocks in industries rated an A or B. That's why investors should consider Gartner, Inc. (IT), Signet Jewelers (SIG), and CRA International, Inc. (CRAI), which are three such stocks.

:  |  News, Ratings, and Charts

Buy These 3 Tech Stocks Before They Soar Further

Tech stocks, which were underperformers at the start of the year, have made their way back as investors have been buying on the dip. Many of these stocks, which include Applied Materials Inc. (AMAT), KLA Corporation (KLAC), and Amdocs Limited (DOX) are currently in an uptrend and are expected to continue this momentum.

:  |  News, Ratings, and Charts

3 Buy-Rated Stocks in A-Rated Industries

Our POWR Ratings system makes it easy to find stocks that are more likely to outperform. Investors just need to look for stocks that have an overall grade of A or B. But, you can go a step further, and only invest in A or B stocks in industries rated an A or B. That's why investors should consider Gartner, Inc. (IT), Signet Jewelers (SIG), and CRA International, Inc. (CRAI), which are three such stocks.

Read More Stories

More Playtika Holding Corp. (PLTK) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All PLTK News