Skillz ( NYSE: SKLZ ) is 13% lower Thursday, reflecting Wednesday's postmarket moves after the company noted a revenue shortfall for the second quarter and sharply cut its full-year outlook .
That's brought a downgrade to Hold at Canaccord Genuity, which also lowered its price target to $1.50 per share from a previous $5.00.
"While progress reducing both user acquisition and engagement marketing spend is encouraging, operational miscues and another significant lowering of top-line expectations lead us to lower our rating to Hold until the business shows renewed signs of sustainable growth," said analyst Jason Tilchen.
User growth both paid and unpaid declined and missed Street estimates, Citi's Jason Bazinet noted. Paying MAUs in particular dropped 26% just from last quarter, to 0.42M. He has a Neutral rating with a $1.55 price target.
That was weaker than expected, Canaccord's Tilchen said, noting that the figure saw impact from increased cheating and product development inefficiencies. Management pointed to "particularly notable abuse of the friend referral program in markets outside the U.S." - a problem it says it's working on with a new identity team - and "slower product development velocity and several product initiatives that haven’t worked out as planned for the degrading user trends."
CEO Andrew Paradise also pointed to productivity problems scaling the business in a remote-work environment and the company is correspondingly returning all employees to the office for five days a week.
The user decline is partly a result of a 43% sequential cut to user acquisition marketing spending (to $42.8M), while a decline in paying MAUs was assisted by cutting end-user discounts, including unprofitable engagement marketing, Tilchen noted.
"Skillz is reducing spend, but paying the price on users and monetization," Jefferies agrees. It has a Hold rating with a slightly more generous $2 price target.
For more, dig into Seeking Alpha's transcript of Skillz' earnings call .
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Skillz falls 13% as analysts probe user declines, execution