I’d like to bring a company to this board that I haven’t seen discussed yet - Skillz (SKLZ).
Description: Skillz is a platform that allows mobile game players to compete for money (or Skillz currency). In other words, it provides IOS and Android gaming developers with the ability to monetize their games via competition, as opposed to relying on ads or in-app purchases. This includes head to head, bracket-like tournaments, or in live events. They have 58 pending patents on technology focused on detecting cheating and optimizing matchmaking for competitions.
Leadership: Andrew Paradise (CEO) co-founded the company with Casey Chafkin (CRO). As avid gamers themselves, they founded the company after being frustrated with the industry standard to monetize skill-based gaming. In several interviews, Paradise mentions the company’s 100-year vision to “create the competition layer for the internet.”
Competition: Skillz is the market leader in its niche. There are a couple of competitors that offer similar services (i.e. Unikrn), albeit they are much smaller private companies that have not reached anywhere near the scale that Skillz has. Paradise states that “Amazon and Sony have tried to compete with us but failed, along with approximately 30 venture-backed startups.” In 2017, Skillz was the fastest growing company in America according to Inc.
IPO Process: It’s worth noting that Skillz public through a SPAC. While I have been skeptical with SPACs, the team leading Skillz’s IPO (Flying Eagle Acquisition Corp) is the same team that led Draftking’s public debut last year. They set a 24-month lock-up period. Paradise mentioned that they chose the SPAC route due to “faster time to market with minimal cost difference, and also allowed us to choose our partner, who just completed the most successful SPAC, together with securing a strong group of PIPE investors including Wellington, Fidelity, etc.”
-62 minutes per user per day on its platform. This is higher than users spend on Tiktok, Facebook, and Youtube!
-70% more engagement generated on its platform than the #1 mobile game
-$1.6B GMV (total entry fees paid by users for contests hosted on Skillz)
-2B tournaments hosted per year
-14% take rate (constant for the past 2+ years)
-2.6M MAU (monthly active users)
-$6.30 ARPU (average revenue per user)
-4 month payback period
Financial Metrics (Q3, 2020):
-92% revenue growth YoY, reaching $60M (19th consecutive quarter of sequential revenue growth)
-92% gross profit growth, to $57M
-95% gross margins (maintained since last year)
-$43M loss for operations (driven by high Sales & Marketing spend)
-Expanding gaming portfolio (currently 4-5 games make up the bulk of their revenue)
-90% of their revenue is US-based, but the international market is 4x larger. Skillz recently announced their intentions to enter the India market in 2021
-Getting into advertising to allow brands to sponsor tournaments
-Massive TAM (2.7B active gamers in the world and 10M developers)
This was not a straightforward calculation as a result of the SPAC so please feel free to challenge my assumptions
-Share price: $20.92
-Shares outstanding (fully diluted): 432M
-Net Debt / Cash: ($250M)
—>Results in an EV of $8.787M
-Expected FY20 revenue: $225M
Investor Presentation: https://www.sec.gov/Archives/edgar/data/1801661/000110465920…
Conclusion: While Skillz is not a traditional cloud high-grower, the metrics certainly qualify it as being worth a discussion in this board. It is a market leader in a rapidly growing segment, with a massive and expanding market. While the valuation is not as attractive as when I planned to bring this company to the board’s attention last week, it may still prove to be irrelevant given its lack of international penetration and additional monetization opportunities. I’m looking forward to hearing others’ thoughts!