Skillz (NYSE:SKLZ) Misses Q1 Revenue Estimates

Kayode Omotosho /
2023/05/09 4:15 pm EDT

Mobile game developer Skillz (NYSE:SKLZ) missed analyst expectations in Q1 FY2023 quarter, with revenue down 52.5% year on year to $44.4 million. Skillz made a GAAP loss of $35.6 million, improving on its loss of $148.1 million, in the same quarter last year.

Is now the time to buy Skillz? Access our full analysis of the earnings results here, it's free.

Skillz (SKLZ) Q1 FY2023 Highlights:

  • Revenue: $44.4 million vs analyst estimates of $44.6 million (0.59% miss)
  • EPS: -$0.09 vs analyst expectations of -$0.07 (32.4% miss)
  • Free cash flow was negative $26.3 million, compared to negative free cash flow of $12.7 million in previous quarter
  • Gross Margin (GAAP): 89.7%, in line with same quarter last year
  • Paying Monthly Active Users (PMAU): 214 thousand, down 356 thousand year on year

“In the first quarter, we continued to make progress on our four pillars to bring the company to profitability that we laid out last year,” said Andrew Paradise, Skillz’ CEO.

Taking a new twist at video gaming, Skillz (NYSE:SKLZ) offers developers a platform to create and distribute mobile games where players can pay fees to compete for cash prizes.

Since videogames were invented in the 1970s, they have gradually taken more share of entertainment time. Cheap, powerful computing and graphics chips have made ever more realistic versions of classic sports, driving and shooting games while also introducing immersive metaverse-like gaming. Ubiquitous mobile devices have powered a surge in “snackable” games that can be played on the go. Over time, games have developed more social engagement features where friends can play games together over the internet. The business models of games publishers have become less volatile due to digitization of distribution, in game monetization, and like Hollywood, an increasing dependence on surefire hit franchises. Covid driven lockdowns accelerated adoption and usage of videogames – a trend that has not slowed.

Sales Growth

Skillz's revenue growth over the last three years has been very strong, averaging 34.6% annually. This quarter, Skillz reported a rather lacklustre 52.5% year on year revenue decline, missing analyst expectations.

Skillz Total Revenue

Before the earnings results were announced, Wall St analysts covering the company were estimating revenues to decline -20.1% over the next twelve months.

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Usage Growth

As a video gaming company, Skillz generates revenue growth by growing both the number of players playing its games, as well as how much each of those players spends on (or in) their games.

Skillz has been struggling over the last two years as the number of monthly active users, a key usage metric for the company, declined 29.6% annually to 214 thousand. This is a pretty significant decline for a consumer internet company.

Skillz Paying Monthly Active Users (PMAU)

In the number of monthly active users decreased by 356 thousand, a 62.5% drop year on year.

Key Takeaways from Skillz's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Skillz’s balance sheet, but we note that with a market capitalization of $257.5 million and more than $504.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We struggled to find many strong positives in these results. On the other hand, there was a decline in number of users and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Skillz. The company is down 3.69% on the results and currently trades at $0.56 per share.

Skillz may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.