Mobile game developer Skillz (NYSE:SKLZ) missed analysts' expectations in Q2 FY2023, with revenue down 45.2% year on year to $40.2 million. Skillz made a GAAP loss of $22 million, improving from its loss of $60.6 million in the same quarter last year.

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“The second quarter was a productive period for Skillz marked by further progress against our strategic initiatives with a focus on developing an array of new product features that will increase consumer engagement and retention. Additionally, we've focused on optimizing our user acquisition strategy to enhance developer success and attract new content onto the platform,” said Andrew Paradise, Skillz’ CEO.

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.

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

Skillz's revenue growth over the last three years has been strong, averaging 20.9% annually. This quarter, Skillz reported a year on year revenue decline of 45.2%, missing analysts' expectations.

Ahead of the earnings results, analysts covering the company were projecting sales to grow 14.7% over the next 12 months.

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Usage 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 has been struggling to grow its monthly active users, a key performance metric for the company. Over the last two years, its users have declined 33.5% annually to 196 thousand. This is one of the lowest rates of growth in the consumer internet sector.

In Q2, Skillz's monthly active users decreased by 224 thousand, a 53.3% drop since last year.

Key Takeaways from Skillz's Q2 Results

Although Skillz, which has a market capitalization of $243.6 million, has been burning cash over the last 12 months, its more than $352.1 million in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We struggled to find many strong positives in these results. There was a miss on revenue and absolute growth was weak. There was a more meaningful miss on quarterly adjusted EBITDA. Furthermore, the decline in its user base was concerning. Overall, this was a mediocre quarter for Skillz. The stock is up 2.31% after reporting and currently trades at $11.07 per share.

Skillz may have had a tough quarter, but does that actually create an opportunity to invest right now? 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.

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The author has no position in any of the stocks mentioned in this report.