Skillz (NYSE:SKLZ) Misses Q1 Sales Targets

Petr Huřťák /
2024/05/09 4:19 pm EDT

Mobile game developer Skillz (NYSE:SKLZ) fell short of analysts' expectations in Q1 CY2024, with revenue down 43.1% year on year to $25.24 million. It made a GAAP loss of $1.45 per share, improving from its loss of $1.70 per share in the same quarter last year.

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Skillz (SKLZ) Q1 CY2024 Highlights:

  • Revenue: $25.24 million vs analyst estimates of $28.86 million (12.6% miss)
  • EPS: -$1.45 vs analyst expectations of -$1.23 (18.2% miss)
  • Gross Margin (GAAP): 86.3%, down from 89.7% in the same quarter last year
  • Free Cash Flow was -$4.91 million compared to -$13.33 million in the previous quarter
  • Paying Monthly Active Users: 121,000, down 93,000 year on year
  • Market Capitalization: $109.6 million

“Execution in the first quarter on our strategic initiatives met with some short-term setbacks, particularly with our new customer onboarding in the period. We have acted quickly to resolve these issues to position Skillz to deliver top-line growth and positive Adjusted EBITDA,” 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.

Video Gaming

Since videogames were invented in the 1970s, they have gradually taken more share of entertainment time. 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 has been declining over the last three years, dropping on average by 11.8% annually. This quarter, Skillz reported a year on year revenue decline of 43.1%, missing analysts' expectations.

Skillz Total Revenue

Ahead of the earnings results, analysts were projecting sales to grow 0.1% over the next 12 months.

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Usage Growth

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

Skillz has been struggling to grow its monthly active users, a key performance metric for the company. Over the last two years, its users have declined 44.5% annually to 121,000. This is one of the lowest rates of growth in the consumer internet sector.

Skillz Paying Monthly Active Users

In Q1, Skillz's monthly active users decreased by 93,000, a 43.5% drop since last year.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Skillz because it measures how much revenue each user generates, which is a function of how much paying users spend on its games.

Skillz ARPU

Skillz's ARPU growth has been decent over the last two years, averaging 8.2%. Although its monthly active users have shrunk during this time, the company's ability to increase prices demonstrates its platform's value for existing users. This quarter, ARPU grew 1% year on year to $69.80 per user.

Key Takeaways from Skillz's Q1 Results

We struggled to find many strong positives in these results. Its number of users declined and its revenue growth was quite weak. Overall, the results could have been better. The company is down 1.7% on the results and currently trades at $6.3 per share.

Skillz may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.