What happened

Shares of Skillz (NYSE:SKLZ) are down 12.2% from last Friday's close, according to data from S&P Global Market Intelligence, on no specific news for the mobile esports platform, but rather a buildup of negative sentiment surrounding its immediate future.

Just a week prior, for example, Skillz Chief Technology Officer Miriam Aguirre announced she was resigning from the company after eight years in the position.

Once a meme-stock favorite, Skillz remains a heavily shorted stock with over 22% of its shares outstanding sold short.

SKLZ Chart

SKLZ data by YCharts

So what

The gaming platform's third-quarter earnings report last month was actually quite positive, although the market reacted with its customary contrary response when it comes to Skillz.

The primary concern seems centered on whether the acquisition of Aarki, the global demand-side advertising platform that reaches some 465 million people, can be leveraged sufficiently to help reduce customer acquisition costs.

Skillz maintains because Aarki expands the universe of players Skillz can reach, business can reduce those acquisition costs over time. Management says the long-term value Skillz derives from its members outpaces those costs fourfold, and by "sniff[ing] the data on 5 trillion auctions every month," CEO Andrew Paradise believes the company can build the data value chain to greater long-term user value.

"Prior to Aarki, we were capturing about 1.8 billion data points a day on user gameplay and behavior," Paradise told Citi's Global Technology Conference. "Now we're capturing the 5 trillion auctions a month that we're participating in."

Friends playing games on smartphones.

Image source: Skillz.

Now what

Skillz needs to prove that it can meaningfully change its business to generate more revenue and greater profit. It's bringing gamers to its mobile platform, now it needs to monetize them.

Monthly active users (MAUs) rose 11% year over year to 3 million in the third quarter, a 25% sequential gain, as Skillz introduced new gameplay, while paying MAUs grew 47% from last year to hit a new record of 510,000. Importantly, revenue per paying user grew to $66.82, a 15% increase. 

Now, lowering Skillz costs is key, but distractions like executive turnover is likely to keep the entertainment stock volatile.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.