We recently compiled a list of the 10 New Stocks Reddit’s WallStreetBets Is Buying. In this article, we are going to take a look at where Skillz Inc. (NYSE:SKLZ) stands against the other WallStreetBets-approved stocks.
The surge of the Internet and the easy access to financial information, courtesy of the personal computing revolution, means that investing is no longer limited to the professionals. While Wall Street of the 1950s and onward was made of traders relying on hand made graphs of daily stock price movements to decipher long term trends, now, anyone with a computer and an internet connection has access to similar and more sophisticated tools.
This has also led to the rise of retail investing, which first made its mark during the coronavirus pandemic. Between 2020 and 2021, more than thirty million brokerage accounts were opened in the US, and the low interest rates coupled with coronavirus stimulus checks led to these traders accounting for 15% of the market’s trading volume in September 2020. Data from investment bank Morgan Stanley shows that retail traders tend to prefer well known consumer facing stocks, and crucially, the bank’s proprietary methodologies also show that in the five years between 2016 and 2021, stocks that garnered interest from retail investors ended up outperforming those without it.
Building on this, the pandemic and the surge of information in today’s age have also shifted the dynamics of how America views wealth preservation. A fresh survey from Gallup shows that while real estate continues to dominate as Americans’ favorite investment regardless of their income bracket, stocks come in second place for middle and high income families. This preference for equities dropped after the Great Recession of 2008 which wiped out some of the biggest companies in the world after risky bets on mortgage securities shattered Wall Street’s public image. According to Gallup’s data, the percentage of Americans who own stocks is the highest in 2024 since 2007 – or before the global economic crisis. Stock ownership stood at 52% of those polled – an all time low – in 2013 and 2016.
It slowly picked up and sat at 55% in 2020, and has risen every year since then to a post 2007 high of 62% in 2024. In fact, the last time stock ownership was higher than it is right now was in 2004 when 63% of Americans owned stocks during an era when interest rates were relatively low and the housing market was booming – economic conditions that are on a completely different spectrum than what we’re experiencing right now.
Building on this, the divergence between retail investors and hedge funds came to the forefront of the investing world during the meme stock mania that saw the former pump up video game retailing and entertainment chain stocks as they rallied on social media and particularly Reddit’s WallStreetBets, this trend continued in 2023. Data from S&P shows that in October when market sentiment about interest rates and the economy was at its lowest, retail investors sold off $15.64 billion in stocks for their largest monthly outflow since 2021. However, at the same time, the hedge funds appeared to smell blood. In a classic illustration of Warren Buffett’s mantra of being greedy when others are fearful, the hedge funds bought $5.56 billion in stocks. Their three favorite sectors were real estate, utilities, and materials, with real estate and utilities witnessing the inflows after smart money flew out in the prior month. For some great Warren Buffett quotes, you can check out Warren Buffett’s 35 Best Quotes About Business, Investing, and Life.
Judging by this, it appears that retail investors are driven by their economic perceptions instead of setting up their portfolios during a downturn. This is also evident in Charles Schwab’s Trader Sentiment Survey released in February 2024. The bank’s data reveals that 52% of retail traders planned to move more money into stocks during Q1 2024, which marks a 7 percentage point sequential gain. This also coincides with their view of the economy, as 48% think that the US will avoid a recession in 2024 and 53% are bullish for the stock market.
With this context and as retail traders start to become bullish once again, we decided to take a look at how their previous bets have performed. The GameStop short squeeze of 2021 brought the Reddit subreddit WallStreetBets into the limelight and made Roaring Kitty a global celebrity. We covered some WallStreetBets stocks in 2021 and 2023, and in this piece, we’ll analyze how the top 2021 stocks have performed since then. If you’re interested in similar content, we also evaluated Cathie Wood’s stock performance as part of our coverage of 10 Best Stocks to Buy and Hold For 5 Years According to Cathie Wood.
Our Methodology
For our list of stocks, we took a look at our 2021 coverage of Forget AMC and Gamestop: 10 New Stocks Reddit’s WallStreetBets Is Buying and evaluated how these stocks have performed since June 2021. The stocks are re-ranked according to their share price percentage performance.
For these stocks, we also mentioned hedge fund sentiment. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A graph depicting the increasing downloads of the mobile game app.
Skillz Inc. (NYSE:SKLZ)
Share Price Performance Since July 2021 Start: -98.23%
Number of Hedge Fund Investors In Q1 2024: 8
Skillz Inc. (NYSE:SKLZ) is an entertainment services provider that enables users to host video game tournaments. It generated quite a bit of hype in 2020 after becoming the first eSports organizer to go public. However, soon after, Skillz Inc. (NYSE:SKLZ)’s stock faced trouble on the stock market as it tried to rely on a blossoming share price to raise more capital by issuing more stock. Such decisions generally do not bode well for young companies, and the stock tanked by 13% in March 2021 when the news hit the wires. This was followed by a 48% drop in December 2022 after the firm shared that it might be delisted from the NYSE. The stock fell another 19% in premarket trading in June 2023 when Skillz Inc. (NYSE:SKLZ) announced a reverse stock split. Investors viewed the decision as Skillz Inc. (NYSE:SKLZ)’s management attempting to prop up the stock without any underyling improvement in its fundamentals. The share price drops continued in 2024, after the firm’s first quarter earnings saw Skillz Inc. (NYSE:SKLZ) report a $26.7 loss that overshot analyst estimates of a $25.78 million loss.
Skillz Inc. (NYSE:SKLZ)’s Q1 2024 earnings call was quite an event as it saw management comment in detail about its legal attempts to combat fraud through bots. On the operational front, they were more sober and shared:
With that said, we have some near-term challenges in Q1, which masked some of the progress. We know that progress on our turnaround initiatives will take time, and it won’t always be linear every quarter, particularly in a period such as Q1, where we implemented several initiatives. That said, our ability to make further progress in improving retention, engagement, monetization, and increasing our audience was not optimized in Q1. This is evident in our paying users for the quarter, with Paying MAU declining to 121,000 in Q1 2024 from 137,000 in Q4 2023. While this rate of sequential decline is significantly less than the sequential rate of decline from Q3 2023 to Q4 2023, we expected to perform better than we did. In Q1, we saw issues with new customer on-boarding, and while we quickly took several actions, these actions did not fix the on-boarding issues enough to benefit our performance in Q1.
We continue to address new player on-boarding issues and believe that as of late April, we’ve implemented the necessary changes to improve on-boarding of new customers and get us back on track to execute our improvement initiatives. While our fixes to on-boarding issues are still in the early stages, the data we have so far indicates our audience decline has slowed. At this time, we do not believe the on-boarding issues and our execution in Q1 will stop skills from being adjusted, even though positive in Q1 will stop skills from being adjusted EBITDA positive in Q4 2024. At the same time, we continue to do a good job with expense management with Q1 2024 OpEx in line with Q4 2023, excluding Q4 one-time accrual reversals. Our adjusted EBITDA loss again improved on a year-over-year basis.
Overall SKLZ ranks 7th on our list of the WallStreetBets-approved stocks to buy. You can visit Forget AMC and Gamestop: 10 New Stocks Reddit’s WallStreetBets Is Buying to see the other WallStreetBets-approved stocks that are on hedge funds’ radar. While we acknowledge the potential of SKLZ as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SKLZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.