Skillz Inc (SKLZ)

[LQMT_Monster]

The math here is simple:
• Skillz operates at 95% gross margins. Take out 40% for Bonus Cash incentives. Say the R&D rate — currently 10% — drops to 5%. Say the G&A rate — currently 18% — drops to 10%. Say the non-incentive S&M rate — currently 70% — drops to a more normal 15%. You’re talking a total opex base of 70%.
• Now, let’s assume stock comp runs about 5% of revenues, which is fairly reasonable.
• 95% gross margins (-) 70% opex rate (+) 5% stock comp (=) 30% adjusted EBITDA margins. That’s assume to leverage on the incentive line. Any leverage there will result in 30%-plus EBITDA margins.
• 30% is the exact adjusted EBITDA margin Skillz management is targeting in the long run.
• We think that’s entirely doable.
• We also think that Skillz has an opportunity grow its revenues by more than ten-fold over the next decade, from ~$370 million this year to over $4 billion by 2030.
• On those assumptions, we believe SKLZ stock is worth over $40 today