Executive Summary / Key Takeaways

• Skillz Inc. is pursuing a strategic turnaround, leveraging its core mobile competitive gaming platform and the rapidly growing AI-powered Aarki ad tech business to achieve consistent top-line growth and positive adjusted EBITDA.
• The company has demonstrated recent operational momentum, with Q3 2025 GAAP revenue growing 9% quarter-over-quarter to $27 million and Paying Monthly Active Users (PMAU) increasing 28% year-over-year to 155,000, driven by improved conversion and monetization.
• Skillz is actively combating alleged bot fraud through ongoing litigation against competitors, believing a "fair play" environment is crucial for industry integrity and will significantly enhance its own player lifetime value to customer acquisition cost (LTV to CAC).
• Aarki, the AI-driven ad tech segment, is a key growth driver, reporting over 100% year-over-year net revenue growth in Q3 2025, fueled by new AI-powered product launches and strategic investments in machine and deep learning capabilities.
• Despite ongoing challenges with timely financial reporting and NYSE compliance, Skillz maintains a healthy balance sheet with $213 million in cash as of Q3 2025 and is diligently working to file all overdue reports by December 17, 2025.

A New Game Plan: Skillz's Strategic Pivot in Competitive Mobile Gaming

Skillz Inc., founded in 2012, has carved out a unique position in the mobile gaming landscape by pioneering a platform for fair, skill-based multiplayer competitions. Operating across two distinct segments—its core eSports gaming platform and the AI-powered Aarki ad tech business—Skillz is executing a strategic turnaround aimed at revitalizing growth and achieving profitability. The company's vision extends beyond traditional mobile gaming, aiming to leverage its combined strengths to tap into adjacent verticals such as e-commerce, interactive entertainment, and retail media.

The mobile gaming industry, a vast and dynamic market, continues to evolve with increasing demand for competitive experiences and sophisticated monetization strategies. Within this environment, Skillz differentiates itself through a steadfast commitment to fair play, a principle it views as fundamental to building player trust and ensuring the long-term health of the industry. This commitment is not merely philosophical; it forms a cornerstone of the company's competitive strategy, particularly against rivals it alleges engage in deceptive practices.

Technological Edge: Powering Fair Play and Intelligent Advertising

Skillz's investment thesis is deeply intertwined with its proprietary technology across both its gaming platform and Aarki. The core Skillz platform is built on advanced matchmaking algorithms designed to ensure fair skill-based competition, a critical factor in retaining players and fostering a loyal community. This technology directly translates into tangible benefits for players and developers alike, promoting engagement and higher conversion rates among existing users. The company's focus on engagement quality over volume is evident in its recent performance, where a modest decline in total Monthly Active Users (MAU) was offset by significant growth in Paying Monthly Active Users (PMAU).

Innovation on the gaming platform is ongoing, exemplified by the launch of "Solitaire Skillz" in Q3 2025. This owned and operated title serves as a testing ground for new platform-wide features and is the first game to emerge from the $75 million Developer Accelerator Program. This three-year initiative, announced in Q4 2024 and formally launched in February 2025, is designed to support at least 25 high-potential games, expanding Skillz's content offerings beyond casual titles into new genres. Management anticipates showcasing additional technology-infused games from this program at the Game Developer Conference in March 2026, aiming to further energize its developer community. Complementing these efforts, Skillz has enhanced its loyalty program, introduced instant ACH deposit and withdrawal options—positioning it as a leader in withdrawal times—and launched the "Skillz Arcade," a single app experience for seamless game switching.

The Aarki ad tech business represents another critical technological differentiator, leveraging artificial intelligence, machine learning, and deep learning capabilities to optimize mobile advertising campaigns. Aarki's platform processes over a billion examples per day, enabling real-time bid optimization at scale for advertisers. In Q2 2025, Aarki rolled out SKAN4 native privacy-centric models for iOS, designed to drive acquisition and retention without reliance on Identifier for Advertisers (IDFA). This was followed by the launch of iOS-enabling privacy-forward performance marketing in Q3 2025. These AI-driven advancements expand Aarki's addressable market, sharpen return on ad spend (ROAS) for its customers, and strengthen its integration with the Skillz competition platform. The synergy between these two segments positions Skillz to capture long-term growth opportunities by extending its AI-powered advertising solutions into broader interactive entertainment and retail media markets.

Competitive Landscape and the Fight for Fair Play

Skillz operates in a competitive environment, facing both direct and indirect rivals. Direct competitors include major players like Unity Software Inc. , Roblox Corporation , Electronic Arts Inc. (EA), and Take-Two Interactive Software Inc. (TTWO). While Unity offers a broader platform for game creation, and Roblox provides a vast user-generated content ecosystem, Skillz distinguishes itself with its specialized focus on fair, skill-based competitive tournaments. Unlike content creators such as EA and Take-Two, Skillz acts as a platform facilitator, offering lower barriers for independent developers to host competitive events.

Skillz's most pronounced competitive stance is its "fair play initiative," which involves ongoing litigation against companies like Papaya Gaming and Voodoo Games for alleged use of bots. Skillz asserts that these practices undermine consumer trust and harm the entire industry. Recent legal victories, such as the denial of Papaya's motion for summary judgment in Q3 2025 and a court order for Papaya to unseal admissions of historical bot use in Q2 2025, underscore the seriousness of these claims. Skillz believes that the elimination of bot fraud will "dramatically change LTV to CAC to our benefit" and ultimately be reflected in its financial performance. This commitment to competitive integrity is a core differentiator, aiming to build a more trustworthy ecosystem that benefits legitimate players and developers.

While Skillz's proprietary technology for fair competition provides a unique value proposition, its smaller scale compared to industry giants like Unity Software Inc. (U) and Roblox Corporation (RBLX) presents certain vulnerabilities. Larger competitors often benefit from greater financial resources, broader ecosystems, and established brand recognition, potentially leading to stronger revenue growth and more robust profitability. Skillz's TTM Gross Profit Margin of 86.50% is strong, but its deeply negative operating, net, and EBITDA margins (-70.65%, -75.38%, -67.66% respectively) highlight the significant operational costs beyond direct revenue, a common challenge for growth-focused companies in competitive markets.

Financial Performance and Path to Profitability

Skillz has shown signs of a potential turnaround in its recent financial performance, particularly in Q2 and Q3 2025. For the third quarter ended September 30, 2025, the company reported preliminary GAAP revenue of $27 million, marking a 9% quarter-over-quarter increase and an 11% year-over-year increase. This growth was supported by the momentum in the Aarki business and the stability of the competition platform. Adjusted EBITDA loss for Q3 2025 was $12 million, a 3% quarter-over-quarter decrease in loss, though a 15% year-over-year increase in loss.

Paying Monthly Active Users (PMAU) reached 155,000 in Q3 2025, representing a 6% sequential increase and a substantial 28% year-over-year growth. This improvement was attributed to higher payer conversion rates and deeper monetization, even during a typically softer seasonal period. In Q2 2025, preliminary GAAP revenue was also $27 million, up 30% sequentially and 8% year-over-year, with a 22% sequential growth excluding one-time adjustments. Q2 PMAU was 146,000, an 18% sequential and 20% year-over-year increase, marking the highest level in seven quarters. The paid user conversion rate improved to 19% in Q2 2025 from 15% a year prior.

Despite these positive trends, Skillz continues to manage its financial reporting. The company has filed notifications of late filing for its 2024 annual report on Form 10-K and its Q1, Q2, and Q3 2025 quarterly reports on Form 10-Q, citing the need for additional time to complete reporting procedures. This has led to a notice of non-compliance from the NYSE. Skillz expects to file all outstanding reports by December 17, 2025, within the NYSE's extended period, and intends to take necessary steps to regain compliance.

From a liquidity standpoint, Skillz maintains a healthy balance sheet. The company ended Q3 2025 with $213 million in cash, including restricted cash, and $129.7 million in total debt principal outstanding. This strong cash position, coupled with gradual improvements in operating cash burn, provides the company with the necessary runway to fund its strategic initiatives and progress toward sustained profitability.

Outlook and Strategic Initiatives

Skillz's management is focused on a clear path to profitability, driven by disciplined execution across its four strategic pillars: enhancing the platform for player and developer engagement, up-leveling the organization, optimizing its go-to-market strategy and monetization, and demonstrating a clear trajectory toward profitability. The company plans to continue investing in Aarki's machine and deep learning capabilities to expand its addressable market and improve returns for advertisers. This investment is crucial as Aarki's net revenue grew over 100% year-over-year in Q3 2025, with improving margins.

The Developer Accelerator Program is expected to be a significant driver of new content, with additional titles anticipated to be showcased at the Game Developer Conference in March 2026. Operationally, Skillz is strengthening its global team, particularly with the expansion of its India office, to enhance product development, marketing, and analytics efficiency. The go-to-market strategy emphasizes acquiring and retaining quality paying players through optimized customer acquisition costs and improved marketing efficiency, aiming for profitable scaling once traffic expands more broadly.

While specific quantitative guidance for future revenue or EBITDA was not provided, management consistently reiterates its goal of achieving consistent top-line growth and positive adjusted EBITDA. The preliminary results for Q3 2025, showing sequential growth in a seasonally softer period, suggest management's confidence in their operational discipline. The successful resolution of the AviaGames patent infringement case, which includes annual payments, further bolsters the company's financial position.

Risks and Considerations

Despite the strategic momentum, investors should consider several key risks. The ongoing delays in filing annual and quarterly financial reports and the associated NYSE non-compliance notice introduce uncertainty and potential listing risks. While Skillz expects to file these reports by December 17, 2025, the preliminary nature of recent financial results means they are subject to revision.

The outcomes of the litigation against Papaya and Voodoo games, while showing positive developments for Skillz, remain uncertain and could impact financial resources and operational focus. Furthermore, the competitive landscape is intense, with larger, well-capitalized players. Skillz's ability to attract and retain developers for its Accelerator Program and to successfully expand Aarki into adjacent verticals will be critical for its long-term growth. The company's forward-looking statements are inherently subject to numerous risks and uncertainties, many of which are beyond its control.

Conclusion

Skillz Inc. is charting a course for resurgence, propelled by a dual strategy centered on its fair play-driven competitive gaming platform and its high-growth, AI-powered Aarki ad tech business. Recent operational improvements, marked by sequential revenue and PMAU growth, coupled with a healthy balance sheet, suggest a positive trajectory toward its stated goal of consistent top-line growth and positive adjusted EBITDA. The company's unwavering commitment to fair play, backed by ongoing litigation, aims to establish a more trustworthy industry, which Skillz believes will directly enhance its competitive standing and financial performance.

The technological advancements in both its gaming platform, through initiatives like the Developer Accelerator Program, and Aarki's AI-driven advertising solutions, are foundational to Skillz's long-term vision. While challenges related to financial reporting and intense competition persist, the strategic integration of gaming and AI-driven ad tech uniquely positions Skillz to capture significant opportunities within and beyond the mobile gaming ecosystem. For discerning investors, Skillz represents a compelling turnaround story, where strategic execution and technological differentiation could unlock substantial shareholder value as the company strives to clean up its industry and scale profitably.