Skillz (SKLZ -5.53%), the esports gaming platform company, released its third quarter 2024 results on November 7, 2024. The earnings report revealed a revenue of $24.6 million, which fell short of analyst projections of $26.6575 million and marked a sharp 32.5% decline from the same period last year. The net loss for the quarter was $21.1 million, translating to a loss per share of -$1.20, deeper than the estimated loss of -$1.1126 per share. Although the company made strides in cost management, the quarter highlighted persisting hurdles, particularly in revenue and user engagement.
| Metric | Q3 2024 Result | Estimate/Expectation | Q3 2023 Result | Year-over-Year Change |
|---|---|---|---|---|
| Revenue | $24.6 million | $26.6575 million | $36.427 million | -32.5% |
| Net Loss | $21.1 million | -$1.1126 EPS | $33.5 million | Improvement |
| Adjusted EBITDA | $(13.9) million | N/A | $(18.5) million | Improvement |
| Paying MAUs | 121,000 | N/A | 168,000 | -28% |
Source: Analyst estimates for the quarter provided by FactSet.
Business Overview
Skillz operates a competitive esports platform enabling game developers to offer gaming competitions. Its business model is rooted in monetizing through player competitions rather than traditional methods like in-game ads, a strategy designed to enhance user engagement and reward game developers.
Recently, the company has focused on a strategic turnaround to navigate its challenges. Key areas include improving user acquisition, defending fair play in gaming through legal actions, and driving towards positive cash flow. These strategic elements are integral to stabilizing its financial footing and establishing long-term growth.
Quarterly Highlights
The financial release for Q3 2024 painted a complex picture. Revenue was reported at $24.6 million, falling short of the $26.6575 million estimation and down 32.5% from Q3 2023. Yet, skillful expense management was evident in the reduction of operating expenses to $42.2 million from $67.9 million the previous year. This considerable cut showcases Skillz's focus on tightening expenditures, despite struggling to boost revenues.
Moreover, Skillz's paying monthly active users (PMAU) experienced a steep decline of 28% from 168,000 in the third quarter of 2023 to 121,000 in 2024. This drop reflects difficulties in maintaining user engagement, stemming from intense competition and shifting consumer behaviors. Average Revenue Per Paying User (ARPPU) also decreased to $67.6 from $72.3, pointing to potential monetization strategy weaknesses.
On a strategic front, CEO Andrew Paradise emphasized ongoing initiatives to reshape the company for growth, with a pivot towards boosting user acquisition spending and enhancing platform features. The settlement with AviaGames, a notable legal victory for Skillz, brought financial uplift, though the positive impact was largely non-operational, contributing to the healthier balance sheet and strategic assurance.
No explicit forward financial guidance was provided in the current earnings call. However, strategic commitments and legal triumphs suggest a cautious optimism for returning to profitability, aiming for a positive Adjusted EBITDA by 2025. This target hinges heavily on ramping up platform innovations and expanding user engagement—which remain pivotal focus points amidst a challenging competitive landscape.
Future Outlook
Looking ahead, Skillz aims for a positive EBITDA run-rate by 2025. The company intends to upscale user acquisition investments and refine platform technologies to bolster engagement. Although it missed its 2024 objectives, management shows determination in its strategic adjustments, eyeing long-term profitability through disciplined operational shifts.
Investors might find it imperative to monitor how management executes its plan in overcoming its user engagement hurdles. As Skillz navigates regulatory landscapes and solves compliance issues, these aspects will be critical in fortifying its market position and ensuring sustainable growth.
