Skillz Inc.

Skillz Inc. (NYSE: SKLZ) is a technology company. It provides monetization services to game developers through a mobile platform.

Investment Rationale – Hold at USD 21.23

• There could be further synergies from the merger with Flying Eagle Acquisition Corp that occurred in December 2020.
• SKLZ’s prospective acquisition of Aarki would extend SKLZ’s player acquisition capabilities. Aarki’s machine learning algorithms would also complement SKLZ’s expertise.
• SKLZ currently has zero debt on its balance sheet. Hence, it could raise liquidity at a cheaper rate than the industry.
• The mobile gaming market is expected to grow by more than 100% by 2025.
• The Company increased its FY2021 revenue guidance. It shows a 63% YoY surge in revenues.
• From a technical standpoint, 20-day SMA at ~USD 16.24 is lower than the stock price, indicating a potential uptick in the stock price in the near term.

Key Risks

• There is a concentration risk as only a few games account for a substantial portion of SKLZ’s revenue.
• Any deterioration of the relationship with third-party service providers would adversely affect SKLZ’s business, operations, prospects and financials.
• The class-action lawsuit filed recently could seriously affect the financials and reputation of the Company.

Recent News

Class Action Lawsuit: On 4 June 2021, investors were advised that a class action lawsuit had been filed on behalf of the Company. Investors who acquired shares between 16 December 2020 and 19 April 2021 could take an active role in it by the deadline of 7 July 2021. This lawsuit was filed due to SKLZ’s false statement regarding its financial condition, growth projection and revenue decline. When this truth came to light, investors suffered damages.

Financial Highlights (for three months ended 31 March 2021 (Q1 FY2021), as of 4 May 2021)

(Source: Company Website)

• Driven by a top-line growth of 92% YoY in Q1 FY2021, gross profit surged by 95% YoY.
• It led to an impressive gross margin of 95%, which was 100 basis points up YoY.
• However, there was an increase in total costs by ~130% YoY, and it led to a dramatic rise in the net loss YoY of ~245.3%.
• The Company’s cash accretive operations led to cash position surging by ~133.2% YoY in Q1 FY2021, with no debt on the balance sheet.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Conclusion

The Company’s acquisitions complement and enhance its operations, expertise and prospects. It currently has zero debt, and hence, it could make further investments at a lower cost. The management has given encouraging guidance for FY2021. However, the recent class-action lawsuit could seriously affect the reputation and financials of the Company, which is running at a net loss. The stock made a 52-week low and high of USD 10.05 and USD 46.30, respectively.

Based on decent growth prospects of the Company, its better leverage position than the industry, prospects of its recent acquisitions, but considering the potentially damaging class action lawsuit and the loss-making position of the Company, we have given a “Hold” recommendation on Skillz Inc at the at the closing market price of USD 21.23 (as of 3 June 2021), and will recommend fresh buying at the right time based on how the Company’s potential growth and profitability turn out and the outcome of the lawsuit becomes clear. 

Codiak BioSciences Inc.

Codiak BioSciences Inc. (NASDAQ: CDAK) is a clinical-stage biopharmaceutical company in the US. It focuses primarily on the development of exosome-based therapeutics.

Investment Rationale for Valuation – Avoid at USD 24.20

• CDAK has so far not generated any revenue from product sales, and the management expects the same status to continue for several years.
• Since CDAK’s inception, it has suffered significant losses including in Q1 FY2021.
• The management anticipates incurring significant expenses and suffer operating losses for the foreseeable future. Expenses would increase significantly due to engEx Platform development, drug discovery and preclinical and clinical development.
• CDAK in Q1 FY2021 has a debt/equity ratio of 0.37x, which is higher than the industry median of 0.00x.
• From a technical standpoint, 14-day RSI stood at around 72.72 in the overbought zone, which means the stock price could move downwards in the short term.

Key Risks

• The clinical trials of exoSTING and exoIL-12 may not achieve the desired results, affecting the margins of the Company.
• Covid-19 pandemic affects CDAK’s business as well as the operations of its suppliers.
• There could be time and cost overrun in the Company’s product development activities and preclinical studies.
• Competing therapies could also affect the Company’s prospects and margins.

Financial Highlights (for three months ended 31 March 2021 (Q1 FY2021), as of 16 May 2021)

(Source: Company Website)

• Total revenue in Q1 FY2021 was USD 13.2 million, up from USD 0.1 million in Q1 FY2020. The work on exoASO™-STAT3 discontinued, and hence, deferred revenue of USD 10.9 million was allocated as revenue in Q1 FY2021.
• Lower manufacturing and preclinical costs led to research and development expenses down to USD 16.6 million in Q1 FY2021 from USD 18.4 million in Q1 FY2020.
• Due to lower clinical development, general and administrative, and personnel expenses, as well as higher revenues, net loss in Q1 FY2021 improved to USD 10.3 million from USD 22.5 million in Q1 FY2020.
• Driven by equity issuance in Q1 FY2021, cash position rose to USD 130.3 million from USD 88.9 million in Q1 FY2020.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company did not provide detailed guidance for FY2021 due to uncertainty in its operations and prospects. It currently has loss-making operations. The management expects to incur further significant losses in the foreseeable future. Also, the expenses are expected to rise significantly to support CDAK’s engEx Platform development, drug discovery and preclinical and clinical development. The stock made a 52-week low and high of USD 7.90 and USD 37.85, respectively.

Considering the lack of detailed guidance, the Company’s loss-making operations, lack of any positive expectation from the management in the foreseeable future, and the valuation of the Company done above, we have given an “AVOID” recommendation on Codiak BioSciences Inc. at the closing market price of USD 24.20 (as of 3 June 2021), while we look forward to reinvesting when there would be clarity regarding the prospects of the Company.

Co-Diagnostics Inc.

Co-Diagnostics Inc. (NASDAQ: CODX) is a US-based molecular diagnostics company. It has a unique Polymerase Chain Reaction (PCR) testing technology.

Investment Rationale – Speculative Buy at USD 8.03

• CODX experienced a massive surge in its top-line in Q1 FY2021, driven by Covid-19 test sales.
• As per management, CODX’s direct saliva technology has the potential to improve COVID-19 testing throughput greatly. It would likely have lower processing cost, too.
• The management has given even higher revenue guidance for Q2 FY2021 than Q1 FY2021 results.
• On the profitability front, CODX’s net margin since FY2020 is significantly higher than the industry median of 4.4%.
• On the liquidity front, the current ratio since FY2019 is consistently higher than the industry median of 4.06x.
• On the leverage front, the debt/equity ratio is zero, which is below the industry median of 0.24x. Hence, CODX could raise adequate liquidity at a lower rate.
• From a technical standpoint, 14-day RSI stood at around 44.28, near the oversold zone, which means the stock price could move upwards in the short term.

Key Risks

• CODX is subject to risks associated with public health concerns and epidemics. Epidemics affect CODX’s operations as well as the operations of its suppliers and customers.
• The Covid-19 outbreak resulted in the clinical trial as well as supply chain disruptions, increasing costs.
• In the US, CODX is subject to FDA regulations. There are other international regulations as well. Any change in regulations would affect CODX’s business.

Financial Highlights (for three months ended 31 March 2021 (Q1 FY2021), as of 13 May 2021)

(Source: Company Website)

• Primarily driven by sales of the Logix Smart™ COVID-19 Test, revenue in Q1 FY2021 received a massive boost. It surged to USD 20 million from USD 1.5 million in Q1 FY2020.
• Due to this massive surge in revenue, operating income improved to USD 10.3 million from an operating loss of USD 1.08 million in Q1 FY2020.
• It also led to a net income of USD 7.9 million in Q1 FY2021 from a net loss of USD 1.07 million in Q1 FY2020.
• It helped in achieving a cash position of USD 60.1 million in Q1 FY2021, rising by USD 12.8 million from the FY2020 level.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Conclusion

The Company has shown a significant improvement in financial performance in Q1 FY2021 YoY. The top-line surged dramatically while the profitability became decent. Also, the liquidity position improved significantly. The Q2 FY2021 outlook is even better than the Q1 FY2021 results. Its technology could improve Covid-19 testing throughput at a lower cost, highlighting a positive outlook. The stock made a 52-week low and high of USD 7.01 and USD 30.99, respectively.

On the technical chart, the next important support level is at USD 6.74.

Based on better profitability, liquidity and leverage ratios of the Company than the industry, decent growth prospects of the Company, its massive surge in revenues in Q1 FY2021 YoY, and its expected enhanced research and development spending, we have given a “Speculative Buy” recommendation on Co-Diagnostics Inc. at the closing market price of USD 8.03 (as of 3 June 2021).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The reference data in this report has been partly sourced from REFINITIV.

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