Shares of mobile game developer Skillz (NYSE:SKLZ) jumped 18.1% in the morning session after the company's board announced a share repurchase program to buy back up to $65 million of its common stock. In addition, the board granted management the authority to explore alternatives for repurchasing as much as $65 million worth of the company's outstanding 10.25% Senior Secured Notes due 2026. A share repurchase program could provide some encouragement for investors as buybacks reduce the total number of shares in circulation, increasing the stock price (holding all else equal).
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What is the market telling us:
Skillz's shares are very volatile and over the last year have had 91 moves greater than 5%. But moves this big are very rare even for Skillz and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was about two months ago, when the stock dropped 18.8% on the news that the company announced that it would execute a 1-for-20 reverse stock split of its Class A and Class B shares. The move will reduce the number of outstanding shares and increase the share price, but will not change the company's market value or fundamentals. However, reverse stock splits often lead to negative market reactions as they are often executed when a stock's per share price falls under certain thresholds such as $10 or $1. While the reverse split does not change anything from a fundamental standpoint, the path to a stock trading below $10 or $1 is often a sign of business weakness or market pessimism. As a result of the reverse stock split, every 20 shares of Skillz issued and outstanding common stock will be converted automatically into one issued and outstanding share of common stock. If you owned 1,000 shares at a price of $0.50, for example, the reverse split would result in owning 50 shares at $10 (both $500 in value). The reverse stock split will become effective on June 23, 2023, and the Class A shares will start trading at the new price on June 26, 2023.
Skillz is down 18% since the beginning of the year, and at $8.36 per share it is trading 73% below its 52-week high of $31 from August 2022. Investors who bought $1,000 worth of Skillz's shares at the IPO in April 2020 would now be looking at an investment worth $42.22.
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