Mobile game developer Skillz (NYSE:SKLZ) fell short of the market’s revenue expectations in Q4 CY2024, with sales falling 30.1% year on year to $20.37 million. Its GAAP loss of $1.50 per share was 32% below analysts’ consensus estimates.
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Skillz (SKLZ) Q4 CY2024 Highlights:
- Revenue: $20.37 million vs analyst estimates of $25.04 million (30.1% year-on-year decline, 18.7% miss)
- EPS (GAAP): -$1.50 vs analyst expectations of -$1.14 (32% miss)
- Adjusted EBITDA: -$18.51 million vs analyst estimates of -$13.27 million (-90.9% margin, 39.5% miss)
- Operating Margin: -128%, down from -87.6% in the same quarter last year
- Free Cash Flow was -$21.06 million compared to -$11.1 million in the previous quarter
- Paying Monthly Active Users: 110,000, down 27,000 year on year
- Market Capitalization: $96.31 million
Company Overview
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
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Skillz’s demand was weak over the last three years as its sales fell at a 37.1% annual rate. This was below our standards and is a sign of poor business quality.
This quarter, Skillz missed Wall Street’s estimates and reported a rather uninspiring 30.1% year-on-year revenue decline, generating $20.37 million of revenue.
Looking ahead, sell-side analysts expect revenue to grow 15.2% over the next 12 months, an acceleration versus the last three years. This projection is admirable and implies its newer products and services will fuel better top-line performance.
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Paying Monthly Active Users
User 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 struggled with new customer acquisition over the last two years as its paying monthly active users have declined by 41.7% annually to 110,000 in the latest quarter. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Skillz wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products. 
In Q4, Skillz’s paying monthly active users once again decreased by 27,000, a 19.7% drop since last year. On the bright side, the quarterly print was higher than its two-year result and suggests its new initiatives are accelerating user growth.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track because it measures how much revenue each user generates, which is a function of how much paying users spend on its games.
Skillz’s ARPU growth has been impressive over the last two years, averaging 7.8%. Although its paying monthly active users shrank during this time, the company’s ability to successfully increase monetization demonstrates its platform’s value for existing users. 
This quarter, Skillz’s ARPU clocked in at $68.10. It declined 3.1% year on year but outperformed the change in its paying monthly active users.
Key Takeaways from Skillz’s Q4 Results
We struggled to find many positives in these results. Its number of users declined and its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 8% to $4.69 immediately following the results.
Skillz may have had a tough quarter, but does that actually create an opportunity to invest right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
