Although special purpose acquisition companies, or SPACs, gained notoriety over the trailing year-and-a-half period, they do offer a clear advantage to retail investors. Without these blank-check firms, regular folks may not have a chance to buy names like Skillz (NYSE:SKLZ) stock.

That’s because traditional market debuts are comparatively onerous, perhaps enough so to prevent SKLZ stock from even existing.

But then again, isn’t that the point of an initial public offering? If any business could offer their equity shares to the wider investment community, more enterprises would do exactly that. Part of the job description for the Securities and Exchange Commission is really to cut down on the number of garbage plays that make to the major exchanges.

Now, I’m not suggesting that SKLZ stock is a throwaway trade. However, I think it’s fair to point out that any company that enters the market via a SPAC merger should be viewed with a tad more skepticism than a regular IPO.

It’s really the difference between buying a used car from that manufacturer’s original dealership as opposed to purchasing from some random person on the internet. Yes, going through the automaker’s dealership is a costly process, but the company will stand by its product.

But with a second-hand transaction through a private party? Caveat emptor, as everyone likes to say. But it raises the follow-up question: why should SKLZ stock or any SPAC-based IPO be any different?

In life as in the markets, there’s usually a reason why something is the way that it is. For companies that entered the public arena via SPAC mergers like Skillz did, you might be buying someone else’s problem. Honestly, if a company had the time, resources and confidence in going public the straightforward way – and not through the back door like SPACs – it would probably do so nine times out of 10.

The Credibility Issue Still Hurts SKLZ Stock

I have a tendency of overexplaining certain concepts so I’m grateful for my colleagues who have skills in succinct explanations. One such person is Dana Blankenhorn, who gave the explanation of the underlying business of SKLZ stock as follows:

Skillz is a game platform. It lets developers create online card games, board games, shooter games and adventure games. The idea is that companies can “gamify” any intellectual property, put it on an online platform, and make money from it with cash prizes and entry fees.

Skillz launched in 2012 for Android and, later, iOS. Much of its work is with sports teams, and it got heavy venture backing.

Because of this gamification potential, Skillz can expand into multiple arenas – and of course, it’s not waiting for anyone’s invitation. For example, Skillz inked a collaboration with the NFL to promote various football-themed digital competitions. Therefore, it’s not the narrative that the bears are challenging SKLZ stock on.

Instead, it’s the credibility of said narrative. As Blankenhorn noted bluntly, “A friend who got into e-sports over a decade ago showed me that sport franchises are often led by dumb, lazy people who expect money without effort.”

Further, he stated that “Unless there is someone inside the NFL working hard on this, I wouldn’t expect anything to come from it. Previous Skillz deals with basketball teams haven’t made the cash register ring or done much for SKLZ stock.”

Exactly. While I’m not going to make a mountain out of a molehill, the reality is that Skillz’s most recent quarterly update for the three months ended June 30 was eyebrow-raising. Losing monthly active users and pinging a slight loss on average revenue per paying user does not provide encouragement.

Expect More, Pay Less

To be clear, it’s not so much that the second-quarter report was poor per say. It’s just that the company should have done more given how the backdrop is more favorable to SKLZ stock.

Since we’re talking about the NFL, there should be brewing excitement that at least for sports leagues, things are going to return more or less back to the old normal. Great! Shouldn’t that result in higher upticks across Skillz’s key metrics?

In my assessment, the fact that SKLZ stock has been all over the map during the past few months indicates wide uncertainty about the underlying company. To repeat the car analogy, no one really knows what’s underneath the hood because no one wants to certify it.

That’s a sign to sit on the sidelines until the price in SKLZ stock justifies the risk.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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