Buy Skillz Stock, Not GameStop

GameStop the presses -- there are plenty of other, better names out there for investors to consider.
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The move by GameStop  (GME) - Get Report over the past few weeks has been nothing short of breathtaking. The irony -- and perhaps the tragedy -- is the company didn't move alone. A handful of names have had the exact same price pattern.

Granted, they may not have risen as far but Koss Corporation  (KOSS) - Get Report did a pretty good job moving from $4 to $127 in only four days. And that matters. Why? Well, there are plenty of folks out there trying to argue that even around $100, GameStop might not be overvalued, but I don't hear a peep about Koss, yet the stocks move together. And they aren't alone. That tells me traders are playing a theme and a group, not the individual story.

GameStop's run in the short-term may not be over, but the long-term story, even the one lobbed by bulls on social media, holds a lot of "ifs" and e-commerce assumptions that act like GameStop has a moat around it. Heck, not only does GameStop not have a moat around it, it doesn't even have a lead. It's playing from behind with original content providers such Electronic Arts  (EA) - Get Report, Activision Blizzard  (ATVI) - Get Report, and Take-Two Interactive Software  (TTWO) - Get Report. Those are the obvious, big-name alternative plays to e-commerce in the video game space.

But what are some alternatives to GameStop that aren't already above a $10 billion market cap?

First up is one of my top gaming stocks for 2021: Skillz  (SKLZ) - Get Report. The stock is already up 85%+ year-to-date, so some patience might be the best path forward here, targeting an entry in the area of $27 to $30. The company offers a proprietary ecosystem that brings together players and developers.

While it may not have a moat, it does have a proprietary system that users average 62 minutes per day on. And with a platform open to developers, it has created a self-sustaining environment. Developers create content, more content draws more gamers, more gamers draw more content and the cycle takes on a life of its own.

A different path would be to buy a Special Purpose Acquisition Corp (SPAC) such as Kismet Acquisition One KSMT. Kismet is buying Nexters Global, the maker of Hero Wars, a multiplayer battle game in which characters fight for territory. You may have seen the ads for the game plastered all over Facebook. The deal values Nexters at $1.9 billion with the acquisition expected to close in the second quarter.

The interesting thing about this play isn't so much the company itself, but the risk-reward on buying KSMT. Shares of the SPAC are currently trading only a little above $10. Since the deal isn't expected to close until the second quarter, a buyer of the stock will have an opportunity to hold shares with little downside risk because of the redemption feature associated with the SPAC, which applies to most SPACs. That is, before the merger closure, holders will have the opportunity to redeem their shares back to the SPAC sponsor right around $10, give or take a dime. That's a heck of a lot less downside than GameStop potentially faces right now.

Those who play online, pay online, so grabbing a stake in Paysafe via SPAC Foley Transimene Acquisition Corp II  (BFT)  is another way to go. Paysafe is an integrated payments platform with a two-side consumer and merchant network. Its core purpose connects and transacts businesses and consumers through payment processing, digital wallets and online cash solutions. It’s married fintech with e-gaming, two of the hottest trends of today and strongest areas of growth over the next decade.

Here’s what Paysafe provides in these areas:

  • Egaming - Proprietary digital currency solutions empowering online, mobile and in-app e-commerce for gamers and cash consumers in over 50 markets. Customers include Roblox, Fortnite, Twitch, Spotify  (SPOT) - Get Report, YouTube, DraftKings  (DKNG) - Get Report and multiple state lottery agencies.
  • Digital Wallet - A network of digital wallet solutions enabling users to upload, store, withdraw and pay funds from a virtual account in over 120 markets. Customers include DraftKings, Bet365, William Hill WIMHF and Betfair.
  • Integrated Processing - Integrated, point of sale (POS) and e-commerce solutions for small and medium-sized businesses (SMB) and e-commerce sellers to accept payments across channels in the United States, Canada and Europe. Customers include DraftKings, Mindbody and NPower.

Paysafe already has a strong business model, and in 2021, it anticipates doing $1.5 billion in revenue from $100+ billion in transactions. Given I would have Roblox on this list if it were public, why not benefit from Roblox anyhow?

A safer, diverse bet is the Roundhill Bitkraft Esport ETF  (NERD) - Get Report. No, this isn't straight-up gaming e-commerce or retail play, but NERD provides an investor with a very diverse group of stock from all over the world. It hits on hardware, software, and services. You'll find ATVI as the top holding of the 33 names in the ETF, but none of those 33 top 6% in allocation.

Lastly, if you're hell-bent on a high short-interest name, then consider one with strong growth and a bright future like fuboTV  (FUBO) - Get Report. The over-the-top skinny bundle brings together streaming and online sports gambling in a sports-focused streaming service. Even at a $3 billion market cap, it's not crazy to think the market could take this higher given the group in which it trades against and the allure of its niche.

FuboTV could make a plug-and-play merger fit for a company looking to get into the space or an expansion for Disney's  (DIS) - Get Report ABC/ESPN unit. The Mouse House could scoop them up for $5 billion in an all-stock transaction and not even lose a whisker. If we're being honest, Fox  (FOXA) - Get Report needs FuboTV much more than Disney but that's a bigger fish for them to swallow and they'll never take the risk. They should, but they won't.

In any case, if you want to play a potential short squeeze, then I'd feel better about Fubo. Around $40 would be an entry to consider but should bull close this over $51, it could really take off.

There are at least a dozen more names I could add to this list. If you truly believe in GameStop long term, I believe you'll get a chance to buy it back in the $30s, if not lower, in the first quarter of 2021; however, even then, I'm not certain it's the best use of funds. Instead, take another pass through the names above and see if one or more resonate with you.

Tim Collins is a regular contributor to Real Money, TheStreet’s premium site and provides options trade ideas each day on Real Money Pro, our sister site for active traders. Click here to learn more and get great columns, commentary and trade ideas from Jim Cramer, Helene Meisler, Mark Sebastian, Paul Price, Doug Kass, and others.

At the time of publication, Tim was long BFT diagonal call spreads, NERD and GME put combinations.