Mobile game developer Skillz (NYSE:SKLZ) missed analysts' expectations in Q4 FY2023, with revenue down 37.8% year on year to $29.14 million. It made a GAAP loss of $1.04 per share, improving from its loss of $7.36 per share in the same quarter last year.

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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 has been declining over the last three years, dropping on average by 0.6% annually. This quarter, Skillz reported a year on year revenue decline of 37.8%, missing analysts' expectations.

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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 36.3% annually to 137,000. This is one of the lowest rates of growth in the consumer internet sector.

In Q4, Skillz's monthly active users decreased by 98,000, a 41.7% drop since last year.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Skillz 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 decent over the last two years, averaging 6.9%. Although its monthly active users have shrunk during this time, the company's ability to increase prices demonstrates its platform's value for existing users. This quarter, ARPU grew 6.6% year on year to $212.69 per user.

Key Takeaways from Skillz's Q4 Results

The company's user base fell and its revenue growth was quite weak in the quarter. However, the bright spot was management saying that Skillz will achieve "positive Adjusted EBITDA on a run-rate basis by the fourth quarter of this year", which is above expectations of roughly breakeven by that time. The stock is up 4.7% after reporting and currently trades at $6.7 per share.

So should you invest in Skillz 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.