Skillz Inc. (NYSE:SKLZ) is a leading mobile gaming platform that connects the world through competition. The company operates a marketplace that enables independent game developers to host tournaments and provide competitive gaming activity to end-users worldwide. Skillz has faced significant headwinds in recent years, but the company is now charting a course towards profitability and sustainable growth.
Skillz was founded in 2012 with the vision of making eSports accessible to everyone. The company's platform allows game developers to integrate competitive gameplay into their mobile games, enabling end-users to compete against each other for prizes. Skillz generates revenue by taking a percentage of the entry fees paid by end-users for these competitions, after deducting end-user prizes and other costs.
Over the years, Skillz has built a robust platform that provides game developers with a suite of tools and services to manage and monetize their games. The company's easy-to-integrate software development kit (SDK) and developer console allow developers to seamlessly integrate and update their games on the Skillz platform. Skillz also offers a range of features to enhance the user experience, such as skill-based matchmaking, anti-cheat measures, and live operations capabilities.
Skillz has experienced significant growth since its inception, with over 16,000 registered game developers having launched a game integration on its platform as of September 30, 2023. However, the company has also faced challenges in recent years, including increased competition, changes in the mobile gaming landscape, and the impact of the COVID-19 pandemic.
Financial Performance
Skillz's financial performance has been mixed in recent years. For the fiscal year ended December 31, 2023, the company reported annual revenue of $150.1 million, a decrease from the previous year's revenue of $222.8 million. The company's annual net loss for the same period was $106.7 million, compared to a net loss of $295.4 million in the prior year.
The company's annual operating cash flow for the fiscal year ended December 31, 2023 was -$69.6 million, while its annual free cash flow was -$82.9 million. These negative cash flow figures reflect the company's ongoing investments in growth and the challenges it has faced in recent years.
Quarterly Performance
In the first quarter of 2024, Skillz reported revenue of $25 million, a 43% decrease compared to the same period in the prior year. The company's paid user conversion rate, which is the ratio of paying monthly active users (PMAUs) to monthly active users (MAUs), was 14% in Q1 2024, slightly down from 15% in the previous quarter.
Skillz's research and development expenses in Q1 2024 were $5 million, down 48% year-over-year, while sales and marketing expenses were $21 million, a 40% decrease compared to the same period in 2023. The company's general and administrative expenses were $23 million in Q1 2024, an 18% decrease from the prior-year quarter.
The company's net loss in Q1 2024 was $27 million, an improvement from the $36 million net loss reported in the same quarter of the previous year. Skillz's adjusted EBITDA loss in the first quarter of 2024 was $18 million, a 15% improvement year-over-year.
Liquidity
As of March 31, 2024, Skillz had $301 million in cash, cash equivalents, and restricted cash, which does not include the $50 million received from the Avia settlement in April 2024. The company had $129.7 million in total outstanding debt at the end of the first quarter.
Skillz's improving cash burn and strong liquidity position provide the company with the flexibility to deploy capital to enhance shareholder value. The company's management has stated that they expect the company's cost structure to benefit from lower legal, audit, and insurance fees, as well as continued prudent management of the cost base.
Turnaround Initiatives and Outlook
Skillz is currently executing on a four-pillar strategy to return the company to consistent top-line growth and positive adjusted EBITDA. These pillars include:
- Enhancing the platform to improve customer and developer engagement and retention
- Up-leveling the organization
- Optimizing go-to-market initiatives
- Demonstrating a clear path to profitability
The company has made progress on these initiatives, including introducing new product features, strengthening its finance team, and optimizing its user acquisition and engagement marketing spend. Skillz remains cautiously optimistic that these actions will position the company to return to profitable growth, with the goal of achieving positive adjusted EBITDA on a run-rate basis by the fourth quarter of 2024.
Risks and Challenges
Skillz faces several risks and challenges that could impact its ability to execute on its turnaround plan. These include:
- Continued competition from larger, well-funded players in the mobile gaming industry
- Potential changes in the regulatory environment for skill-based gaming
- Reliance on a limited number of game developers for a significant portion of its revenue
- Ongoing litigation and legal challenges related to the use of bots and unfair practices in the industry
The company's management has acknowledged these risks and is taking steps to address them, such as its legal actions against companies it believes are engaging in fraudulent practices. However, the ultimate outcome of these challenges remains uncertain.
Conclusion
Skillz is navigating a challenging period as it works to execute on its turnaround plan and return to profitability. The company's strong liquidity position and ongoing initiatives to enhance its platform, optimize its operations, and demonstrate a clear path to profitability provide reasons for cautious optimism. However, the company continues to face significant risks and headwinds in the highly competitive mobile gaming industry. Investors should closely monitor Skillz's progress in addressing these challenges and executing on its strategic priorities in the coming quarters.