Skillz Inc - Ordinary Shares (SKLZ) 1 Aug 24 2024 Q2 Earnings call transcript

Skillz Incorporated held its second quarter 2024 earnings call, providing insight into its financial performance and strategic initiatives. The call, led by Co-Founder and CEO Andrew Paradise, featured updates on the company's ongoing efforts to combat fraudulent practices and enhance its platform to improve customer engagement.

Financial Performance and Outlook

Skillz reported preliminary unaudited second quarter results, which are subject to revision as the company completes its internal review. The company has faced challenges in filing financial reports with the Securities and Exchange Commission (SEC), including the failure to file its Form 10-K for the fiscal year ended December 31, 2023, and its Form 10-Q for the fiscal quarter ended March 31, 2024, by the required deadlines. Despite these challenges, Skillz is working diligently to file these reports as soon as practicable and expects to file the Form 10-K within the six-month period granted by the NYSE notice.

The company's second quarter revenue was $25 million, down 37% year-over-year and flat sequentially. However, Skillz reported a positive net income of $26 million for the quarter, a significant improvement from a net loss in the same period last year. The positive net income was largely driven by the gain on the settlement of the AviaGames litigation.

Focus on Fair Play and Combat of Fraudulent Practices

One of the key themes that emerged during the call was Skillz's commitment to combating fraudulent practices in the skill-based gaming industry. The company has been particularly vocal about its efforts to address the use of bots and deceptive practices by certain gaming companies, such as AviaGames and Papaya Gaming, which manipulate match results to their advantage. Skillz has taken a strong stance against these practices, pursuing legal action and advocating for enhanced regulatory oversight to protect consumers and restore trust in the industry.

Andrew Paradise highlighted the company's recent settlement with AviaGames for $80 million, with payments of $50 million already received and the remaining payments scheduled for the next few years. However, he expressed concerns that AviaGames has not yet altered its behavior regarding bot usage, and that the company's titles remain on app stores, attracting new, unsuspecting consumers daily.

Strategic Initiatives and Future Outlook

Skillz outlined its strategic initiatives for returning to consistent top-line growth and positive adjusted EBITDA. These include enhancing the platform to improve customer and developer engagement, up-leveling the organization, optimizing go-to-market strategies, and demonstrating a clear path to profitability. The company has made progress on these fronts, particularly in optimizing expenses and reducing reliance on expensive third-party contractors.

Despite some setbacks in the first and second quarters, Skillz remains optimistic about its future prospects. The company is working to maintain its current system-wide payback period and is targeting a six-month to eight-month payback on deployed capital. Skillz is also focusing on scaling its digital marketing efforts and building new features on the platform to engage and retain new customers.

Investor Questions and Future Outlook

During the question-and-answer session, investors asked about Skillz's decision to increase spending on growth marketing and how the company plans to measure the effectiveness of this spend. Andrew Paradise emphasized the importance of maintaining a six-month to eight-month payback period while controlling customer acquisition costs. The company is targeting the same ROAS, same overall CAC, and same payback periods, while allowing some fluctuation as it scales marketing budgets on channels with a six-month payback.

Investors also inquired about the broader mobile gaming industry's performance and Skillz's position within it. Gaetano Franceschi noted that the company is seeing some level of stabilization in its business, with a focus on scaling digital marketing and building new features on the platform to engage and retain new customers. However, the impact of bot fraud on the mobile gaming industry, particularly in confusingly similar marketing messages from fraudulent companies, is influencing the overall market perception. Skillz is working to combat bot fraud and bring justice for players, which the company believes will significantly change the landscape for its business in the next couple of quarters.

In conclusion, Skillz Incorporated's second quarter 2024 earnings call provided insight into the company's financial performance and strategic initiatives. Despite facing challenges in filing financial reports with the SEC and dealing with fraudulent practices in the skill-based gaming industry, Skillz remains optimistic about its future prospects. The company's commitment to combating bot fraud and enhancing its platform to improve customer engagement is a positive sign for its long-term growth prospects. As Skillz continues to navigate these challenges, investors will closely watch its progress towards profitability and its ability to maintain a strong market position in the mobile gaming industry.