Skillz Aarki Acquisition Draws Praise from Analysts, Investors

Posted on: June 5, 2021, 08:29h. 

Last updated on: June 6, 2021, 12:19h.

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

Skillz (NYSE:SKLZ) stock surged 17.26 percent this week, thanks entirely to a 27 percent gain on Wednesday. The move came on news the mobile games company is buying internet advertising firm Aarki for $150 million in cash and stock.

Skillz stock
Scenes from an esports tournament. Analysts like Skillz’s move to buy Aarki. (Image: Getty Images)

It’s the esports tournament provider’s first acquisition of note since its initial public offering (IPO) last December. It’s one that’s drawing praise in the investment community. Analysts say the deal will help Skillz take advantage of evolution in online advertising while potentially trimming customer acquisition costs.

We see this acquisition as a smart strategy to capitalize on a rapidly evolving advertising ecosystem in which it is increasingly difficult for advertisers to effectively target consumers without a unique 1P data asset, and the deal will not only enable Skillz to increase its user acquisition efficiency, but also improves its value proposition for game developers by helping them more effectively monetize ad inventory,” said Canaccord Genuity analysts Michael Graham and Maria Ripps in a note.

They see the Aarki deal providing short- and long-term profitability and revenue benefits to Skillz after the transaction closes next quarter. The analysts rate Skillz stock a “buy,” with a $30 price target, implying upside of almost 50 percent from the June 4 close.

Aarki Buy Could Put Skillz Stock on Road to Redemption

This week’s gain helped put Skillz stock in the green for 2021, with year-to-date gain of 1.55 percent. Prior to that, the name had been one of the most controversial in the gaming space, experiencing a peak-to-trough decline of roughly 78 percent amid a slew of negative research reports on the company.

The Aarki acquisition could be a catalyst for Skillz. The company is paying just five times revenue for the online advertising platform, and the transaction is expected to be accretive to earnings and revenue. Plus, some well-known investors see other positives in the deal.

“Given Aarki’s exposure to the UK, India, and South Korea, this strategic acquisition should accelerate Skillz’s international expansion goals. Lessening its dependence on third-party DSPs to reach new users, we believe the acquisition also should lower Skillz’ user acquisition costs and bolster the monetization of existing monthly active users (MAUs),” said ARK Investment Management in a note out Friday.

ARK is one the largest Skillz shareholders. It steadily bought the stock during its aforementioned slump, and has been an ardent defender of the stock, rebutting some of the claims laid forth by bearish researchers.

Positive Move for Skillz

The Aarki buy could hold other positives for Skillz.

“Management feels it can improve Aarki’s machine learning algorithms by integrating Skillz’ first-party data asset, which should result in improved performance for marketers and enhanced content creation for game developers,” said the Canaccord Genuity analysts.

The research firm adds the transaction could help Skillz more efficiently attract users to its platform while bolstering its plans to expand outside the US.

“Aarki currently has over 100 publisher relationships across a broad mix of ad formats, with notable partners including AdColony, Google Ad Manager, InMobi, MoPub, Unity Ads, and Verizon,” according to Canaccrod Genuity.