Skillz vs. Ubisoft: Which Electronic Gaming Stock is a Better Choice?

Skillz Inc. (SKLZ) in San Francisco is a technology company that enables game developers to monetize their content through fun and fair multiplayer competition. In comparison, Ubisoft Entertainment SA (UBSFY) produces, publishes, and distributes video games for consoles, PC, smartphones, and tablets in both physical and digital formats worldwide.

Since last year, the electronic gaming industry has been booming, driven by rising interest in indoor entertainment amid social distancing mandates and stay-at-home orders. In 2020, mobile games generated $77.20 billion in revenues. Players increased 12% to 2.5 billion. Analysts expect the global games market to generate $175.8 billion in revenues in 2021 and more than $200 billion by the end of 2023. So, SKLZ and UBSFY should benefit.

SKLZ shares have declined 70.8% in price over the past six months, while UBSFY has slumped 31.8%. Also, SKLZ’s 47.5% loss year-to-date compares with UBSFY’s 37.4% loss.

Click here to check out our Video Game Industry Report for 2021

But which stock is a better buy now? Let’s find out.

Recent Developments

On August 2, SKLZ formed a strategic partnership with Exit Games, the global developer of Photon, the world’s most advanced synchronous multiplayer gaming technology. The company expects this partnership to accelerate its timeline to support multiplayer synchronous content on the platform. It also enables the company to build unrivaled features in tandem with Exit’s gaming technology.

On July 19, UBSFY announced Tom Clancy’s XDefiant, a forthcoming free-to-play FPS blending fast-paced 6-v-6 arena combat with faction-based abilities. Given the popularity of the Tom Clancy universe over the past 21 years, this expansion should be a hit in the market, providing an enhanced gaming experience to the players.

Recent Financial Results

SKLZ’s cost of revenue increased 49.3% year-over-year to $4.39 million in its  fiscal second quarter, ended June 30. Its loss from operations stood at $49.99 million, up 297.1% from the same period last year. Its net loss grew 294.9% from the year-ago value to $79.60 million. The company’s net loss per share increased 200% year-over-year to $0.21.

For the 12 months ended March 31, UBSFY’s sales increased 39.4% year-over-year to €2.22 billion ($2.60 billion). Its operating income grew 586.4% from its year-ago value to €289.40 million ($339.32 million), while its net income improved 184.7% year-over-year to €105.20 million ($123.35 million). The company’s EPS improved 175.9% year-over-year to €0.85 ($1.00).

Past and Expected Financial Performance

Analysts expect SKLZ’s revenue to increase 70.7% in the current quarter, 69.5% in the current year, and 42.5% in the next year. The company’s EPS is expected to grow 95% in the current quarter and decline 99.7% in the current year.

In comparison,  UBSFY’s EBIT and revenues grew at CAGRs of 15.3% and 8.7%, respectively, over the past three years The Street expects UBSFY's revenue to increase 5.6% in the current quarter, 1.9% in the current fiscal year, and 11.8% in the next fiscal year.

Profitability

UBSFY is more profitable, with a 4.64% and 20.46% respective net income  and EBITDA margins, compared to SKLZ’s negative 80.78% and 55.32%.

Furthermore, UBSFY’s ROE, ROA, and ROTC of 7.04%, 5.89%, and 7.68%, respectively, compare with SKLZ’s negative 82.60%, 26.21%, and 35.80%.

Valuation

In terms of forward EV/Sales, SKLZ is currently trading at 9.07x, which is 69.6% higher than UBSFY, which is currently trading at 2.76x. Also, SKLZ’s 7.79 trailing-12-months Price-to-Book ratio is 51% higher than UBSFY’s 3.82.

Thus, UBSFY is an affordable stock here.

POWR Ratings

UBSFY has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. SKLZ, in contrast,  has an overall F rating, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

UBSFY has a B grade for Stability, while SKLZ has an F grade for Stability. UBSFY’s relatively low 0.59 beta is in sync with its Stability grade. In contrast, SKLZ has a 3.06 beta, which is consistent with its Stability grade.

Of the 23 stocks in the Entertainment - Toys & Video Games industry, UBSFY is ranked #4, while SKLZ is ranked #23.

Beyond what we’ve stated above, we have also rated the stocks for Sentiment, Momentum, Value, Quality, and Growth. Click here to view UBSFY ratings. Also, get all SKLZ ratings here.

The Winner

The electronic gaming industry is expected to grow in the coming months and benefit both SKLZ and UBSFY. However, UBSFY’s strong financials coupled with higher profit margins we think makes it a better buy here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Entertainment - Toys & Video Games industry here.

Click here to check out our Video Game Industry Report for 2021

UBSFY shares were unchanged in after-hours trading Monday. Year-to-date, UBSFY has declined -37.04%, versus a 20.41% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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