Mobile game developer Skillz (NYSE:SKLZ) fell short of analysts' expectations in Q3 FY2023, with revenue down 39.5% year on year to $36.43 million. Turning to EPS, Skillz made a GAAP loss of $1.57 per share, improving from its loss of $3.80 per share in the same quarter last year.

Is now the time to buy Skillz? Find out by accessing our full research report, it's free.

“We continue to make progress on our initiatives to improve the business, though our third quarter results highlight the fact that the Company still needs to improve its execution to be positioned to deliver consistent top line growth and positive cash flow,” 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.

Video Gaming

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 unremarkable, averaging 9.9% annually. This quarter, Skillz reported a year on year revenue decline of 39.5%, missing analysts' expectations.

Ahead of the earnings results, analysts covering the company were projecting sales to grow 18.2% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

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 35.5% annually to 168,000. This is one of the lowest rates of growth in the consumer internet sector.

In Q3, Skillz's monthly active users decreased by 152,000, a 47.5% drop since last year.

Key Takeaways from Skillz's Q3 Results

Although Skillz, which has a market capitalization of $123.6 million, has been burning cash over the last 12 months, its more than $335 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. Its user base fell and its revenue growth was quite weak. Overall, this was a mediocre quarter for Skillz. The company is down 1.8% on the results and currently trades at $5.6 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

Join Paid Stock Investor Research

Help us make StockStory more helpful to investors like yourself. Join our paid user research session and receive a $50 Amazon gift card for your opinions. Sign up here.

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