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Is It Game Over for These 2 Entertainment Giants?

The gaming industry has witnessed a significant drop in demand from the pandemic highs. Moreover, as consumers weigh discretionary purchases in an inflationary backdrop, is it game over for the entertainment stocks Roblox (RBLX) and Skillz (SKLZ)? Read on to find out…

Entertainment companies, particularly in the gaming sector, are facing a slowdown in demand considering their pandemic highs. According to data from analytics firm NPD, U.S. consumer spending on video games fell 11% in June and is expected to decline 8.7% this year. The slowdown comes atop the struggles due to component shortages.

This has raised concerns about the entertainment industry’s ability to weather a downturn. Long thought to be recession-proof, the gaming industry is now seeing a drop in revenues as consumers weigh discretionary purchases. Moreover, an Ampere Analysis research forecasted global video game sales to contract by 1.2% to $188 billion in 2022.

Given this backdrop, fundamentally weak entertainment stocks Roblox Corporation (RBLX) and Skillz Inc. (SKLZ) might be best avoided now.

Roblox Corporation (RBLX)

RBLX operates as a developer and operator of an online entertainment platform. The company’s offerings include Roblox Studio, Roblox Client, Roblox Education, and Roblox Cloud.

RBLX’s loss from operations rose 19.1% from its year-ago value to $170.27 million in the second quarter that ended June 30. The company’s net loss attributable to common stockholders grew 25.9% from the same period last year to $176.44 million. Net loss per share attributable to common stockholders increased 20% year-over-year to $0.30.

Street expects RBLX’s EPS to come in at a negative $0.32 for the third quarter (ending September 2022), indicating a decrease of 146.9% from the prior-year period. The consensus revenue is estimated to be $683.82 million for the same quarter.

RBLX’s shares have declined 41.4% over the past year and 55.3% year-to-date to close its last trading session at $46.10.

RBLX’s POWR Ratings reflect its poor prospects. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

RBLX has an F grade for Stability and a D in Growth, Value, Momentum, and Sentiment. It is ranked last in the 22-stock Entertainment - Toys & Video Games industry. To see additional POWR Ratings for Quality for RBLX, click here.

Skillz Inc. (SKLZ)

SKLZ operates a mobile games platform that connects players in fair, fun, and meaningful competition. The company primarily develops and supports a proprietary online-hosted technology platform that allows game developers to host tournaments and provide competitive gaming activity to end-users.

For the second fiscal quarter ended June 30, SKLZ’s revenue decreased 18.1% year-over-year to $73.34 million. Its loss from operations increased 8.2% from the prior-year quarter to $54.11 million. The net loss per share amounted to $0.15.

Analysts expect SKLZ’s EPS to decrease by 67.1% to a negative $0.79 for the fiscal year ending December 2022. The consensus revenue is expected to decline 29.5% from the prior-year period to $270.86 million for the same period.

The stock has declined 82.1% over the past year and 74.3% year-to-date to close its last trading session at $1.91.

The POWR Ratings reflect SKLZ’s bleak prospects. The stock has an overall D rating, equating to a Sell in our proprietary rating system.

SKLZ has a Stability grade of F and a Growth, Momentum, and Sentiment grade of D. It is ranked #20 in the same industry. Click here to see additional POWR Ratings for SKLZ (Value and Quality).

RBLX shares were trading at $45.11 per share on Thursday afternoon, down $0.99 (-2.15%). Year-to-date, RBLX has declined -56.27%, versus a -9.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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