Shares of online mobile multiplayer video game competition platform Skillz (NYSE:SKLZ) stock are finally recovering, gaining 54% in the last month. After an excellent debut, the stock struggled and lost a lot of steam. But if it pulls back a little more, this looks like an excellent video game stock for your portfolio

Shares are down over 80% from their 52-week high of $46.30. It’s a tough pill to swallow for investors who purchased into what seemed like an unstoppable force in gaming competition platforms — at least until now.

Skillz reported its third-quarter earnings on Nov. 3, missing analyst targets slightly. Revenues jumped by 70.5% year on year to land at $102.1 million.

Much of this growth is attributable to Aarki, an AI-focused marketing platform the company recently acquired. More interestingly, Skillz spent 112% on marketing expenses in Q3. However, Skillz reported an increase in MAU count to 509,000 from 463,000 in the prior quarter.

It’s understandable why the company wants to keep spending money. These are still early days for Skillz and its operating model — being very unique in creating games on their own.

Instead, developers are encouraged to create a game and then sign a revenue-sharing agreement with Skillz. So, when a title is a hit, as is the case with Big Buck Hunter recently, the company has to promote it heavily.

Meanwhile, on that end, SKLZ stock is currently dealing with strong headwinds in the form of high advertising prices. It is forcing them to decrease their customer acquisition marketing leading to sluggish user growth.

Overall, it is tough going for investors at this stage. Recently, the only positive coming to mind is the appointment of Vatsal Bhardwaj as the company’s new chief product officer. He brings a lot of experience to the fore as the company navigates troubled waters.

Understanding the Business Model

Although there are several titles on Skillz, it is generating the bulk of its revenue from three games. Investors valuing an economic moat are concerned, however — Skillz management is focusing on increasing the quality and attractiveness of its games to customers.

While some investors have an issue with a concentration, management is not focusing specifically on customer/developer concentrations but rather looking out for ways to make their services better.

Skillz seems to view games on its platform in an almost identical manner that Netflix (NASDAQ:NFLX) or HBO Max might look at its movies or TV series. Its highest interests are promoting their highest quality content with the hope of attracting more users.

CEO Andrew Paradise believes Skillz operates a rotation policy similar to any major streaming service. Just as these companies are constantly looking for new content in order to attract users who have switched away.

Moreover, Skillz must also search high and low within this industry’s vast array of software developers’ creations to find a gold nugget. Once that happens, it will increase in popularity. HBO did not care when Game of Thrones dwarfed the competition because it was ultimately generating interest for the company. The same is the case with Skillz.

Aarki Is an Excellent Long-Term Investment

Skillz has shown that it can reduce marketing costs by acquiring an advertising business called Aarki. The AI-enabled mobile marketing platform helps brands grow and re-engage with users. Aarki uses machine learning in tandem with big data to produce engaging creative campaign on any device or network where they are present — all without human intervention.

Aarki gives Skillz the opportunity to save money and time on its marketing. With Aarki, it can lower expenses by moving some of this spending from other providers into its own platform. It can also force competing companies that were previously distributing products through them into competition for these clients with an improved product offering themselves.

Buy SKLZ Stock on the Dip

Concerns surrounding SKLZ stock are valid. However, once you understand the business model, they do not seem major. The larger issue is the stock price, which has risen substantially due to the appointment of Vatsal Bhardwaj.

Once the stock loses a bit of luster, SKLZ stock is a good gaming company to have in your portfolio, considering the growth of the gaming industry.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.