In this segment, we discuss how Cathie Wood of ARK Investments has remained loyal to multiplayer platform Skillz despite its recent stock drop.
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Paul Dawalibi 1:20:15
But let me let me bring up the the story here, which was, Cathy wood continues to load up on skill stock skills has taken a bit of a beating in the markets. For those of you don’t know, they’re a platform where you can essentially play against like, like challenge other players to more casual games for money. And supposedly, Cathy Woods ETFs are loading up on skills. They own as of April 23 6.9 million shares in one of her funds, and 11 million shares in her other Fund, which represents there was a percentage ownership here, which now I can’t find 1% that they own about 2% total between the two funds. So 2% of skills between the two funds. I don’t know if you guys have thoughts, because skills has taken a pretty big nosedive from a stock price standpoint, still very valuable business. Right. And I don’t think many of the fundamentals have changed. I don’t know what you guys how you guys feel about skills? And you know, Kathy, would probably if the smartest investor on the planet right now. Yeah, and so hard, hard to, like be contrarian with her because, you know, she has done extremely well. But what is the feeling on skills in this context?
Jeff Cohen 1:22:13
Yeah, I mean, I think we were, you know, fairly, you know, you and I and the rest of us were a little bit negative on skills back when it was trading, you know, in the 40s. Just, I think the valuation they were getting, they were really being valued as if they were like a social media platform, like, almost A ROBLOX on steroids, where, you know, what they really are, I think, is, is way more of a mobile game developer, you know, there’s a lot of revenue concentration, I think it’s 88%, or 80, something percent of revenue comes from two or three games. So pretty highly concentrated, you know, amongst a small amount of games, there was also some data out there showing those gains, the downloads of those games starting to slow. So I think that’s kind of led to a bunch of short selling, which is really, you know, led the stock to come down, you also saw the, they did a big secondary round, where the founder, you know, sold a bunch of stock. So that’s not usually something you like to see right after company IPOs. So I think that probably got investors a little bit. spooked, there was also a short report out that, you know, I don’t want to comment too much too much on but I thought it was really compelling, where they talked about basically how they’re, they’re kind of double dipping on revenue a little bit in the sense of, they’re, they’re giving players free money for bonuses. And then when players go and use that money to play the games, it’s counted as revenue. But because the money they’re giving to players is basically fake money, it’s it, you know, it’s all digital until someone cashes out until they win and cash out. They’re effectively creating revenue through sales and marketing. And when you look at like the cash revenue, you know, where which would basically be what players actually deposit into the system, and then use that the revenue number would really be, you know, something like 40 or 50% less. Now, you kind of need, like an accounting major to really understand that to some extent. And it’s, it’s, it’s an interesting read, but I think it’s, it’s a little bit frightening. So if you think about their, you know, the cash receipts, the cash in the business, maybe is a lot lower than what the actual revenue looks like that is being generated. And when you have a business that’s trading on a revenue multiple, particularly a really high one, you know, that can lead investors to get to get pretty scared pretty quickly. Then you toss in some potential, you know, maybe regulatory problems down the line where they’re kind of operating this gray area of, of online gambling. There’s a lot of potential potential issues. Now. I don’t want to opine too much just you know, those are that’s kind of the bear case in the bull case. I will say like you said before, I mean, Cathy wood. They’re rock stars. I mean, they absolutely kill it. And you know, particularly now He was on the podcast last week, I said earlier, I think he’s one of the sharpest guys in the space. So, you know, if they have if they have a thesis there, they’re probably right. And, and obviously, you know, like, the fundamentals haven’t really changed, but the price has. So you know, when the price is down 60% the multiple you’re paying is obviously a lot less demanding. So, you know, at these levels, maybe it’s it’s a decent time to buy. Personally, I don’t think I would, but it’s clearly better by now than it was at 40.
Paul Dawalibi 1:25:28
I mean, Jeff, if you had to guess, what do you think? Is the, our thesis here to be buying up? More shit? Is it just a question of, like, average cost here, and then, you know, averaging down their, their their costs?
Jeff Cohen 1:25:44
I think to some extent, it’s, it’s, it’s indicative of a good process, right? Like I respect Now, that’s not to say they’re right, but I do respect the fact that they have a thesis, and the stock has gone down. So they’re using it as a buying opportunity, right, like, that’s what good investors do. And when you’re right, you end up, that’s how you end up making, you know, tons of money. I think their thesis is built around that it’s a platform, they’re building the competition layer of the internet, you know, all these triple A games are eventually going to, to kind of add in these gambling aspects. And, you know, you’ll see a day where Call of Duty mobile will have a, you know, a gambling layer and skills will obviously I’m just throwing that out as an example. But then skills will be what it’s built on. If that future ever comes to pass? Yeah, it’s it’s definitely gonna be worth more than five or 6 billion, whatever it’s worth now, it’s going to be worth 20 or 50 billion. So that’s what they’re making the bet on. And I respect that they have conviction in the thesis, and they’re, they’re buying more. I mean, we’ve seen this do this in Tesla, we’ve seen them do this and multiple other. Exactly, massively, right. So yeah, I don’t really want to be on the other side of their trades typically.
Paul Dawalibi 1:26:53
Just ask a good question, how much a skills hurt by the spec strategy fizzling? I mean, it could just be that right? Like could just be part of the part of the the sell off could just be that spax in general have been hurt pretty badly across the board. Like they’re, you know, you have you have wasn’t Forbes who wrote an article on, you know, SPAC sort of fizzling out or something like that, where it may just be a general, they just got sort of hit by splatter from something else.
Jeff Cohen 1:27:24
But which is weird, because it’s like, you would think that why would once the once it’s a business, like you once thought that you would look at the merits of the business, not like, I could see, you know, spax that haven’t done an acquisition yet. You would, you would maybe would trade within that bucket. But that’s not to say that’s not happening because I do you know, specs that have dispatched have been getting hit, you know, kind of defies logic that would think at that point you who cares how they came to market, you just look at the, you know, the fundamentals of what they are now. So, yeah,
Paul Dawalibi 1:27:54
let me just read some of these kind of get caught up in something sounds kind of says, kind of Yikes. Not gonna lie. Good. Take from the juice. I’m telling you guys, I will little inside baseball here. I came up with the juice, like a minute before the show started. Okay. A little bit of a bit of inside baseball. You don’t want to know what Jeff was going with before. You just don’t know. What
Jeff Cohen 1:28:18
am I gonna get 1am I gonna get my G Fuel. Your flavor. My checks from G foo? Isn’t there? Didn’t excuse me do a flavor that I would like my revenue share. You know, don’t you know, the founder can be like,
Paul Dawalibi 1:28:32
yeah, I’m gonna click Morgan. Great guy, one of the smartest guys in the gaming space. Great podcast.
Jeff Cohen 1:28:38
Product tastes like Rams piss last week, but that was a joke from furious.
Unknown Speaker 1:28:44
It doesn’t. It’s
Jeff Cohen 1:28:44
good. I actually tried one. I never had had one. Now I’ve had one and it wasn’t actually Rambis. It was good.