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Skillz vs. Unity Software: Which Gaming Stock Rules?

The market for 3D interactive content, including video games and 3D entertainment, is expanding rapidly. Due to the COVID-19 pandemic, user engagement has risen across both 3D entertainment platforms and
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The market for 3D interactive content, including video games and 3D entertainment, is expanding rapidly. Due to the COVID-19 pandemic, user engagement has risen across both 3D entertainment platforms and mobile gaming, as more users play 3D video games or indulge in 3D virtual experiences.

According to an RBC Capital report, the mobile gaming total addressable market (TAM) was worth $91 billion last year, representing more than half of the total global gaming market, which is worth $175 billion.

Using the TipRanks Stock Comparison tool, let us compare two content creation companies, Skillz and Unity Software, and see how Wall Street analysts feel about these stocks.

It is important here to note that Skillz lists its competitors as companies that provide users with other forms of discretionary entertainment besides mobile gaming, and that includes Unity Software.

Skillz (SKLZ)

Skillz’s proprietary mobile gaming platform helps developers to build franchises and enables players to compete with each other in their games. SKLZ’s source of revenue is a percentage of player entry fees in paid contests.

Yesterday, the company reported record revenues in Q2 of $89.5 million, a jump of 52% year-over-year, which beat the consensus estimate of $88.2 million.

However, the company’s net loss per share widened to $0.21 per share from a loss of $0.07 per share in the same quarter last year. Analysts were expecting a loss of $0.10 per share.

Looking at the Q2 results, SKLZ updated its revenue guidance for FY21 from “$375 million to $376 million for Skillz on a stand-alone basis, plus $13 million revenue contribution from the business combination with Aarki resulting in combined 2021 revenue of $389 million.”

Last month, the company announced the acquisition of Aarki in a $150 million cash and stock deal. The acquisition is expected to close in the third quarter of this year. Aarki is a demand-side platform (DSP) with a reach of 465 million monthly users.

According to the company, this acquisition is expected to “broaden Skillz’s footprint across the rapidly expanding mobile gaming industry by combining its competitive platform with Aarki’s advanced advertising capabilities.”

Earlier this month, SKLZ also invested $50 million for a minority stake in Exit Games. Exit Games enables developers to create and host real-time, synchronous multiplayer games such as Photon. (See Skillz stock chart on TipRanks)

Following the Q2 results, RBC Capital analyst Brad Erickson assigned a Hold rating but reduced the price target from $17 to $15 (23.6% upside) on the stock.

Erickson cautioned, “CAC [customer acquisition cost] continues going the wrong direction as a percentage of revenue and with MAU’s [monthly active users] and paid users both down q/q [quarter-on-quarter], it’s difficult to paint a picture towards meaningful stock appreciation unless CAC efficiency improves going forward.”

Skillz reported MAUs of 2.4 million in Q2, down 7.6% year-over-year. Average revenue per paying user (ARPPU) fell from $64.99 in the second quarter of last year to $64.36 in Q2 of this year.

Erickson pointed out that SKLZ spent $1.31 in customer engagement per incentive spend during Q2 for each $1 of revenue generated. Reflecting that payout, the company’s sales and marketing spend was 122% of revenue in Q2 versus 121% in Q1, according to the analyst.

According to Erickson, “This furthers a narrative that the business’s growth rate is heavily tied to this user incentive spend which is yet to show improving efficiency and likely does little to dispel a key part of the bear case.”

Turning to the rest of the Street, consensus is that SKLZ is a Moderate Buy, based on 3 Buys and 2 Holds. The average Skillz price target of $20.90 implies an approximately 72.2% upside potential to current levels.

Unity Software (U)

Unity Software’s platform provides a comprehensive portfolio of software solutions for developers to create and monetize 2D and 3D content for tablets, PCs, mobile phones, and consoles.

The content created through the Unity platform can be deployed on more than twenty platforms, including Microsoft Windows (MSFT), Apple’s (AAPL) Mac, Nintendo’s Switch, and Sony’s (SONY) PlayStation.

The company generates revenues through monthly subscriptions for its real-time 2D and 3D interactive content development tools. Unity also earns revenues through revenue sharing arrangements and usage-based models, along with its monetization products, Unity Ads, and Unity IAP (In-App-Purchases). These products help developers grow their end-user base and monetize their content.

Unity is expected to report Q2 results on August 10. The company anticipates non-GAAP operating loss to range between $30 million and $40 million in Q2, as Unity continues to invest in its business.

Unity has projected revenues to vary from $240 million to $245 million in Q2. This forecast includes two months when Apple’s IDFA came into effect and indicates year-over-year revenue growth between 30% to 33%.

For FY21, Unity expects to take a hit of $30 million when it comes to its revenues. This is related to Apple’s Identifier For Advertisers (IDFA), which came into effect in April this year. Apple’s IDFA came into force with the launch of Apple’s iOS 14.5.

This development will result in app developers being unable to track a user’s IDFA if users opt out of sharing their privacy details while downloading an app from AAPL’s app store. (See Unity stock chart on TipRanks)

Unity discussed the impact of the IDFA in its Q1 earnings release, saying, “We have been preparing for IDFA for the last two years. So far, spending on our platform is strong, our contextual model (which does not rely on IDFA) is performing well, and customer feedback is strong. Early indications give us confidence that we are performing better than other players in the market.”

Despite the impact of IDFA, Morgan Stanley analyst Matthew Cost initiated coverage of Unity late last month and reiterated a Hold rating with a price target of $115 (5.4% upside) on the stock. Maintaining a positive outlook, the analyst commented, “We see game engines like unity as secular beneficiaries in the gaming industry, leading to 29% '20-'24 growth in the create solutions segment (~40% of revenue).”

According to Cost, Unity has benefitted from a shift “towards third party engines in the gaming industry, as its technology is now used by >50% of all games (including >60% on mobile).”

Moreover, the analyst said, “As shown in our detailed comparison of leading engines, we see Unity's ease-of-use, cross platform flexibility, and freemium pricing model as key strengths vs. peers.”

Turning to the rest of the Street, consensus is that Unity Software is a Strong Buy, based on 6 Buys and 2 Holds. The average Unity Software price target of $122.57 implies an approximately 12.3% upside potential to current levels.

Bottom Line

While analysts are cautiously optimistic about Skillz, they are bullish about Unity Software. Based on the upside potential over the next 12 months, Skillz seems a better Buy.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The post Skillz vs. Unity Software: Which Gaming Stock Rules? appeared first on TipRanks Financial Blog.

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Spread & Containment

Costco Stock Forecast and Review

When looking at a Costco stock forecast, there are a few things to watch out for. The predictions for growth continue for investors.
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Costco (Nasdaq: COST) is currently the world’s 3rd largest retailer by revenue (behind Walmart and Amazon) and is well known for offering wholesale prices to its members. To start with a Costco stock forecast, it’s important to understand the business…

For just $60 per year ($120 if you go with the “Executive Member” plan), Costco members can save money on gas, groceries and just about every product in between. Costco also owns the highly-coveted title for “The World’s #1 Seller of Rotisserie Chickens.”

Costco opened its first store in Seattle in 1983 and today has grown to 815 warehouses. From the get-go, its strategy has been to eliminate all the “frills” associated with retailers in order to cut costs. By cutting its operating costs to the bare minimum, it’s able to save money and pass these savings on to its customers. Common retail expenses that you won’t find at a Costco location are salespeople, fancy buildings or delivery options (groceries excluded).

Costco Saves for Customers and Investors

Over the years, Costco has become popular for saving its members tons of money. However, to shop at Costco you need to join its membership program which currently sits at just under 110 million cardholders. This equates to at least $6.6 billion in annual recurring revenue for Costco. However, the loyalty that this membership builds is worth much more than $6 billion.

When you sign up for a Costco membership, Costco automatically becomes your de facto place to purchase goods. Almost without thinking, you’ll pick Costco over Target, Walmart or Amazon because you know that you’ll save money by shopping at Costco. On top of the savings, you also want to make sure that your $60 per year commitment doesn’t go to waste. When it gets a new member, Costco wins twice. It gets $60 in annual recurring revenue and it also gets a large chunk of that person’s daily spending, potentially for the rest of their life.

Programs like Amazon Prime and American Airlines’ AAdvantage program have been successful for similar reasons. After signing up, Amazon Prime members will slowly get in the habit of ordering everything from Amazon. They want to take advantage of free 2-day shipping. Also, some diehard AA members will not even consider booking with another airline because they want to ensure that they’re getting rewarded for flying (through AA miles).

With this in mind, should you include Costco stock in your portfolio, even if you don’t have a membership card at home?

Let’s take a quick look at a Costco stock forecast as well as a few predictions for the stock moving forward.

Costco Stock Price Forecast

Note: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions.

Costco is scheduled to announce earnings on September 23, 2021.

In today’s investing environment, so much relies on the coronavirus pandemic. Did the company have a business model that thrived during the pandemic? Did it capitalize on this position? Will this success continue now that the pandemic is mostly over? In Costco’s case, these answers are yes, yes and yes.

Costco was undeniably a Coronavirus winner (check out these telemedicine stocks as well). People were prepping for the COVID-19 quarantines like it was the apocalypse and Costco’s wholesale-style business is literally designed to help people save money while prepping for the apocalypse. What’s surprising, however, is that Costco is actually getting more traffic now than it was B.C. (Before-COVID).

According to foot traffic data from Placer Labs, Costco’s monthly visits were up 13.8% in July 2021 as well as 12.8% in August 2021 (when compared to 2019 numbers). During its December 2020 earnings report, it reported that revenue from memberships rose 7%. It’s likely that many people opened a new Costco membership in hopes of saving money while it stockpiled quarantine supplies. Now, even though the pandemic is over, this buying habit remains.

Notably, Costco’s success is not an outlier within the industry. Other wholesalers like Sam’s Club and BJ’s have also experienced higher traffic.

Costco Stock Predictions

Costco is scheduled to announce earnings on September 23, 2021. Analysts are expecting EPS of $3.54 and revenue of $61.45 billion. Both of these numbers are higher than the previous quarter where analysts were expecting EPS of $2.28 and revenue of $43.28 billion.

Costco has beaten its last four revenue predictions as well as three out of four of its EPS predictions. However, since investors have set a higher bar for Costco, it may be more difficult for it to reach it. It’s very possible that Costco reports an increase in revenue but still falls short of investors’ expectations, which could result in a lower stock price.

In 2020, Costco posted total revenue of $166.7 billion and a net income of $4 billion. This completed five years in a row of growing revenues with an average yearly growth rate of 7.57%. Costco also has a dividend yield of close to 1% and razor-thin profit margins of 2.4%.

Costco’s stock was up about 30% in 2020 and is up 200% over the past five years.

Is Costco Stock a Buy?

When making a Costco stock forecast, there are a few things to watch out for.

Mainly, record inflation numbers recently could hurt Costco’s profitability in the short term. Since Costco is known for low prices, it will likely do its best to avoid raising prices even as inflation pushed its costs higher. A similar situation happened with Kroger recently. Higher costs with the same prices would mean less profit for Costco, who already operates on razor-thin margins.

If you’re looking for stocks that can profit on inflation, check out these agriculture stocks. They can pass along increasing costs to customers over time.

On the bright side, Costco was able to use the pandemic to thrive in both the short term and (potentially) the long term. Costco added more memberships during the pandemic, which should result in more loyal shoppers and higher revenues for the years to come. When looking at the long-term Costco stock forecast, the outlook certainly looks rosy. This is especially true since Costco dominates the wholesale retail industry as it faces little competition from Sam’s Club and BJ’s.

The increase in Costco’s membership is also important because Costco is due to raise the price for its membership fee. On average, Costco increases its membership fee by about 10% every 5-6 years. Its last increase was a few years ago, so this fee should be coming in the next 18 months or so. Due to the immense size of this program, even a 10% price increase would boost revenue from memberships by at least $660 million.

Its membership fee is a significant contributor to its gross margin, so this extra revenue could have a big impact on profitability as well as Costco’s stock price. Of course, this is assuming that the membership price increase doesn’t also lead to a drop in total memberships.

As usual, assigning a Costco stock price prediction in the short term is always difficult. This is especially true because there are plenty of other factors that could hurt the market overall. Market-wide moves could hurt Costco stock.

For example, there are rumors that the Federal Reserve will raise interest rates. This increases concerns over inflation, as well as a stock market that has run 90% since its March 2020 low. These are all things to keep in mind when determining whether or not to buy Costco stock in the short term. With that said, Costco stock is certainly positioned well for continued success in the years to come.

Investing Beyond Costco Stock

I hope that you’ve found this Costco stock forecast to be valuable in helping you determine a Costco stock prediction! As usual, all investment decisions should be based on your own due diligence and risk tolerance.

If you’re looking for even better investing opportunities, sign up for Wealthy Retirement. It’s a free e-letter that’s packed with tips and tricks. You’ll hear directly from bestselling author Marc Lichtenfeld. He’s an income expert who literally wrote the book on getting rich with dividends.

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Colgate-Palmolive Stock Gets Squeaky-Clean Appraisal

Home goods maker Colgate-Palmolive (CL) got a boost on Sunday, as Deutsche Bank offered some positive commentary on the stock. The shift makes Colgate-Palmolive just a little more attractive. The
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Home goods maker Colgate-Palmolive (CL) got a boost on Sunday, as Deutsche Bank offered some positive commentary on the stock.

The shift makes Colgate-Palmolive just a little more attractive. The combination of past performance, and a surprising extra feature, leaves me fairly bullish on Colgate-Palmolive overall.

Colgate-Palmolive's year has been fairly moderate so far. For most of the year, Colgate-Palmolive's share price has remained in a tight range between $76 and $84.

There have been a few breakouts above $84, but these seldom lasted long. One pronounced dip back in late February/early March kept the price below $76 for a while, but even here, it never got much lower than $74 for a closing price. (See Colgate-Palmolive stock charts on TipRanks)

Deutsche Bank analysts noted that many of Colgate-Palmolive's troubles are already priced into the stock. This is particularly true for inflation, an increasing concern worldwide.

Most investors, analysts noted, are focused tightly on issues of costs for companies like Colgate-Palmolive. Perhaps too tightly, Deutsche Bank's Steve Powers noted. Powers additionally noted that the improved focus on growth at Colgate-Palmolive isn't as appreciated as it should be.

Thus, Deutsche Bank not only hiked its recommendation (to a Buy from a Hold), but also its price target, going from $84 per share to $86 per share.

Wall Street's Take

Wall Street consensus analysis calls Colgate-Palmolive a Hold. This assessment has changed several times in the last year. As recently as September 2, Colgate-Palmolive was considered a Moderate Buy, which changed from being a Hold back on April 1.

Out of the nine analysts giving 12-month price targets on Colgate-Palmolive in the last three months, two consider the company a Buy, while seven call it a Hold.

The average Colgate-Palmolive price target is in a very narrow range. The current average price target is $88, which represents upside potential of 14.9%.

An Unexpected Income Champ

The overwhelming majority of analysts right now call Colgate-Palmolive a Hold, and with good reason.

Looking for Colgate-Palmolive to be a winner among growth stocks is about like looking for a rock to win the Kentucky Derby. The past year shows minimal movement in the company's share price overall. That's not great for anyone looking for growth value. For those looking for a safe, secure income stock, however, Colgate-Palmolive may be a winner.

A look at Colgate-Palmolive's dividend history shows an exciting upward trend. The company has raised its dividend every year for the last five years, and then some. Never by very much, granted.

Considering that we just went through a pandemic, a company that's hiking its dividend, even by cents per share, is a welcome sight.

Concluding Views

There's no doubt Colgate-Palmolive benefited from the pandemic, and the stock-up frenzy that followed. There's also no doubt that that benefit is gone now, as most of the world re-opens. Yet the need for soaps, toothpaste, and the like will never truly go away.

This consistent demand should make Colgate-Palmolive stock an attractive prospect for some time to come. Its regular — and regularly raised — dividend only sweetens an already attractive pot.

Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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Zoom-ing in on the Strengths and Threats of Zoom

Shares of video-communications provider Zoom (ZM) have plunged around 20% since it released its second-quarter fiscal 2022 results on August 30, pulling down the valuation of its impending all-stock acquisition
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Shares of video-communications provider Zoom (ZM) have plunged around 20% since it released its second-quarter fiscal 2022 results on August 30, pulling down the valuation of its impending all-stock acquisition of Five9.

Putting it into context, Zoom had inked a definitive acquisition agreement with Five9 back in July this year. Five9’s software products for contact centers, such as workforce management, speech recognition, predictive dialer, etc., are offered through a virtual contact center cloud platform, enabling inbound and outbound customer interactions in a single platform.

The deal is expected to close in the first half of calendar year 2022, helping Zoom penetrate the $24 billion global contact center market. If the acquisition materializes, Five9’s CCaaS (contact center as a service) solution will be integrated with Zoom’s broad communications platform.

However, the acquisition has a few hurdles to overcome, due to which I have a neutral stance on the stock. Needham analyst Ryan Koontz, who has been closely following Zoom’s developments for the past few weeks, identified a few key possibilities that can dampen the company’s growth efforts in the near future, and some upsides that may mitigate those risks.

For starters, the majority of Five9 shareholders are not too happy with the deal, and may either straight-out vote against the acquisition later this month, or make more demands. However, Koontz sees a possibility that Zoom might offer Five9 shareholders a mix of stock and cash worth around the original implied value of $200 per share. This might turn around the negative investor sentiment.

Koontz believes Five9 to be the only pure-play enterprise CCaaS company in the world, and its acquisition intention demonstrates that Zoom is looking at acquiring “adjacent-product, growth companies with well-established enterprise channels."

Again, although Zoom has displayed excellent efficiency and execution during the pandemic, one trend concerns the analyst. Koontz stated, “We are concerned that the growth at the low end, namely pro-sumer and small business customers, outpaced the expansion of the company's mid-market and enterprise business.” This low-end of the market typically sees a high level of customer churn, and may pose as a headwind before Zoom can grow its Events and Platform sales.

“We choose to wait for better insights into post-pandemic and new product trends before getting more constructive on the stock,” explained Koontz, maintaining his Hold rating on the stock.

Koontz notes that there is a likelihood of Zoom shifting its focus from the contact center to its new Events strategy. He believes that the company can achieve scale in this area by taking the path of strategic acquisitions.

“We view the events industry as highly complex and a key area where Zoom could benefit from acquiring complementary, non-video centric products, staff, and industry know-how to more quickly establish the deep ecosystem required for enterprise-scale events,” he said, pointing at the announcement of a possible investment in event marketing and management company Cvent.

Notably, Koontz looks at Cvent as a more favorable acquisition candidate for Zoom, as against virtual events companies Kaltura (KLTR) or On24 (ONTF), which are not as advanced in enterprise channel development as Cvent.

The consensus rating for Zoom is a Moderate Buy, based on 10 Buys and 8 Holds. The average Zoom price target of $375.85 indicates an upside potential of 35.08%.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Zoom-ing in on the Strengths and Threats of Zoom appeared first on TipRanks Financial Blog.

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