Skillz (NYSE:SKLZ) reported its 22nd straight quarter of growth on Aug. 3 for its second-quarter results. Revenue grew by 52% year over year (YOY). It also had a 52% growth in paying monthly average users (PMAU) and higher average revenue per paying user (ARPPU). This consistent growth has good implications for SKLZ stock going forward.

On top of this, Skillz raised its revenue guidance for 2021 to $376 million. We can use that to estimate the gaming company’s free cash flow in the future.

For example, this will represent a 63.4% increase over the $230 million in sales the company made in 2020. Moreover, analysts estimate Skillz will make $559.8 million in revenue during 2022.

This means that 2022 will show a 49% gain in sales over 2021. It also means that over two years, Skillz sales will have more than doubled (+143%). That works out to an average of 56% average annual growth over the two-year period.

Skillz Stock Valuation

Skillz stock has a $5.64 billion valuation at the close Tuesday. That implies that its price-to-sales (P/S) multiple is high at 10 times 2022 forecast sales ($5.63 billion/$560 million sales). This is a bit higher than many of its peers, which have P/S multiples ranging from 3.5 times to 8 times.

However, Skillz has very consistent growth, as I mentioned earlier. Having 22 consecutive quarters of higher growth means the company should have a higher than average valuation metric.

Recent Acquisition Will Sustain SKLZ Stock

Moreover, the company just acquired Aarki, a growing demand-side platform with more than 465 million monthly users. Skillz believes that this deal will lower its user acquisition (UA) costs mainly because it is a “demand-side platform” or DSP.

This is a kind of game that allows advertisers to buy ad space in the game platform, as opposed to a supply-side platform (SSP). Most SSPs like Skillz make revenue from selling subscriptions, gaming tokens, and other items in the game.

For example, here is what management said in the Skillz Q2 shareholder letter:

“Aarki is a highly complementary acquisition that broaden’s (sic) Skillz’s footprint … by combining our leading monetization with Aarki’s advanced UA capabilities … In Q2, 81% of the MAU on the platform were not payors. In the future, we could use Aarki’s technology, data, and relationships to sell impressions of our non-paying users to advertisers, which would generate new revenue streams for us and for our developer partners.“

So, this acquisition will lead to lower acquisition costs and higher revenue. That will help propel its growth.

Estimating FCF Going Forward

Let’s assume that it can make a 15% FCF margin on sales of $560 million in 2022. That works out to $84 million in FCF during 2022 or shortly thereafter.

Now, using a 1% FCF yield estimate, the value of SKLZ stock is $8.4 billion (i.e., $84 million / 0.01 = $8.4 billion). This represents a potential gain of 48.9% over that previous market cap of $5.64 billion. That also implies that SKLZ stock is worth $20.26 per share (i.e. 49.43% over its price of $13.61 Tuesday at the close).

Analysts like SKLZ stock even more than I do. For example, the average estimate of five analysts who’ve written on Skillz stock in the last three months is $20.90. That is an upside of 68% over today’s price.

What To Do With SKLZ Stock

Skillz’s ability to show flexibility with its business model with the Aarki acquisition is impressive. It should help the company grow and become profitable by next year. I estimate the stock is worth at least 49% more at $20.26 and analysts are even more ebullient on the stock.

However, there are risks.  If the company doesn’t achieve profitability next year, or if the acquisition does not pan out, investors could soar on SKLZ stock.

Nevertheless, this looks like a good play for the long term, especially with its latest earnings announcement. Look for SKLZ stock to move significantly higher over the next year.

On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.