Mobile game developer Skillz (NYSE: SKLZ) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales fell by 11.2% year on year to $22.41 million. Its GAAP loss of $0.92 per share was 16.4% above analysts’ consensus estimates.
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Skillz (SKLZ) Q1 CY2025 Highlights:
- Revenue: $22.41 million vs analyst estimates of $20.75 million (11.2% year-on-year decline, 8% beat)
- EPS (GAAP): -$0.92 vs analyst estimates of -$1.10 (16.4% beat)
- Adjusted EBITDA: -$15.06 million vs analyst estimates of -$15.95 million (-67.2% margin, 5.6% beat)
- Operating Margin: -59.2%, up from -106% in the same quarter last year
- Free Cash Flow was -$12.66 million compared to -$21.06 million in the previous quarter
- Paying Monthly Active Users: 124,000, up 3,000 year on year
- Market Capitalization: $86.66 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.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Skillz’s demand was weak and its revenue declined by 38.2% per year. This was below our standards and suggests it’s a low quality business.
This quarter, Skillz’s revenue fell by 11.2% year on year to $22.41 million but beat Wall Street’s estimates by 8%.
Looking ahead, sell-side analysts expect revenue to decline by 2.6% over the next 12 months. While this projection is better than its three-year trend, it's tough to feel optimistic about a company facing demand difficulties.
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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 33.6% annually to 124,000 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. 
Luckily, Skillz added 3,000 paying monthly active users in Q1, leading to 2.5% year-on-year growth. The quarterly print was higher than its two-year result, suggesting 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 subpar over the last two years, averaging 2.9%. This raises questions about its platform’s health when paired with its declining paying monthly active users. If Skillz wants to grow its users, it must either develop new features or lower its monetization of existing ones. 
This quarter, Skillz’s ARPU clocked in at $62.20. It declined 10.9% year on year, worse than the change in its paying monthly active users.
Key Takeaways from Skillz’s Q1 Results
We enjoyed seeing Skillz beat analysts’ revenue, EPS, and EBITDA expectations this quarter. Zooming out, we think this quarter featured some important positives. The stock traded up 3.4% to $5.46 immediately after reporting.
Skillz had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. 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.
