What happened
Shares of mobile-game monetization platform Skillz (SKLZ 4.80%) fell 15.8% in August, according to data provided by S&P Global Market Intelligence. The company was already struggling, and new data in August showed that the mobile gaming space is becoming tougher. And late in the month, the company responded to its poor results by announcing more changes to its business.
So what
Skillz reported financial results for the second quarter of 2022 on Aug. 3, but the stock moved little based on that news. Revenue fell 22% year over year to $93 million as the company cut back on its marketing spending in an attempt to avoid low-value customers and boost its overall profitability.
NYSE: SKLZ
Key Data Points
On one hand, it's true that Skillz's bottom line improved in the second quarter compared to its $80 million net loss in the same quarter of 2021. However, that's not saying much as the company still had a whopping $61 million net loss in the second quarter alone, which isn't sustainable.
Skillz shed users as well in the quarter. Monthly active users declined from 2.4 million last year to 2.2 million now. And paying monthly active users fell nearly 10% to just 420,000. This coincides with a general industry pullback in video-game spend. Content spending fell 13% year over year in the second quarter, according to data from The NPD Group. So the pullback is a broader issue.
However, the drop in Skillz's user base also coincides with the company cutting back on marketing spending. This gives some support to a theory that its users won't stick around without incentives.
As mentioned, the stock was little moved with second-quarter results. The bigger moves came later in the month with various third-party analysts' observations about the gaming space that largely mirrored those of The NPD Group.
Now what
On Aug. 25, Skillz announced that it had parted with Doris Fritz-Bianchi (who was its Head of People), board member Jerry Bruckheimer abruptly resigned, and Fifth Street Gaming CEO Seth Schorr was added to the board.
Later on in this filing, the company announced it had been releasing employees throughout August in a move that's unrelated to its previously announced reorganization plans. The stock trended lower following this announcement.
These latest announcements suggest that Skillz is under some financial stress. The company has about $470 million in cash, cash equivalents, and marketable securities. But it had a nearly $200 million loss from operations in the first half of 2022, which means its cash position doesn't give it much runway without drastic changes.
For perspective, Skillz's management isn't projecting for the business to break even until the end of 2024. And even that is on an adjusted basis. The plan also assumes ongoing growth in its user base, which as we've seen is in decline.
In summary, it's understandable why Skillz had a hard month in August. And it might not be the last bad month for the stock if things continue on their current course.
