Skillz was founded in 2012 by Andrew Paradise and Casey Chafkin. It went public in December 2020 through a merger with the Flying Eagle Acquisition Corporation.

It provides a platform to turn any mobile game on iOS and Android into one you can play with other players (friends and strangers).

HOW IT WORKS

Developers integrate their game with Skillz’ software development kit (SDK). This seamlessly transforms their game into an eSports platform where players can compete for points, prizes and cash.

EARNING WHILE PLAYING

On top of offering a way to compete with players for fun, Skillz’ games enable players to take home tangible prizes.

  • Players pay entry fees to compete in games
  • Winners take home their prizes
  • The game developer and Skillz split what’s left on an equal share basis

In 2019, the top 10 players have won $ 24m with Skillz. Three times the 2018 earnings.

“The top 10 mobile esports athletes of 2019 have tripled their earnings, winning $24 million compared to the $8 million of 2018’s top players — a testament to the growth of Skillz and esports as a whole.” Andrew Paradise, CEO of Skillz by Dean Takahashi for VentureBeat

COMPETITIVE GAMING FOR ALL

Online gaming has often been a frustrating experience for less experienced players as they have to compete with advanced players.

In order to cater to less experienced players Skillz has developed a wide range of features to make games fair and competitive:

DELIVERING RESULTS

Skillz’ formula is attracting and retaining players. Boosting total time spent on app and translating into higher sales for game developers and Skillz:

  • Average time spent on app is twice the industry average
  • Player retention is 24% higher than the industry average
  • Skillz counts over 30m players and 20k game developers
  • Of these, 2.7m are active monthly users
  • More than 3.5m tournaments take place each day, distributing $ 60m in prizes each month

    “With the Skillz platform, we were easily able to add a competitive spin to Solitaire Cube that, in turn, increased our monetization and provided an ad-free experience for our users,” Tim and Ether O’Neil of Tether Studios by Dean Takahashi for VentureBeat

GROWING FAST

Skillz expects to power 2B tournaments in 2020, including 500m paid entry tournaments. Up from 1B tournament in 2018 and around 36m in 2014. Here is how that translates into sales:

  • In 2015, Skillz brought in $ 20m in entry fees
  • In 2016, Skillz brought in $ 56m in entry fees
  • In May 2017, Skillz hit $ 100m revenue run rate
  • In February 2018, it hit $ 200m revenue run rate
  • In September 2018, it hit $ 400m revenue run rate

Supported by steady player growth:

THE MARKET

The eSports market is growing at over 20% per year over the 2020 - 2025 period, driven by increasing smartphone penetration, a reduction in the price of mobile internet and innovations such as cloud gaming.

1. According to Goldman Sachs, eSports revenue is set to reach $ 3B by 2022

  • With prize pools expected to grow by a CAGR of 30% over the 2019 - 2024 period

2. According to Research And Markets, the eSports market is set to grow by a CAGR of 20% over the 2020 - 2025 period and reach $3B

  • Driven by the growing popularity of eSports on a global level and increasing game publishers support

3. According to Research And Markets, the global mobile gaming market is set to grow by 14% a year over the 2020 - 2025 period

  • Driven by growing smartphone penetration, decline in costs in internet data packs and innovations such as cloud gaming and augmented reality

4. According to Statista, mobile games in the USA reached $ 18.3B in 2020 - up 19.5% year on year

  • Revenue is expected to show an annual growth rate of 10% over the 2020 - 2025 period and reach $ 29.6B
  • Driven by growing user penetration from 46% in 2020 to 53% in 2025

    “The Skillz platform capitalizes on the phenomenal growth of esports, […] We are the first company to democratize esports for players and game developers, and the first company to do it at scale.” Andrew Paradise, CEO of Skillz by Dean Takahashi for VentureBeat

    “Mobile gaming keeps growing at crazy rates. It is now half of the total gaming market, but it was less than a fifth in 2012 when we started.” Andrew Paradise, CEO of Skillz by Dean Takahashi for VentureBeat

FOUNDER-LED AND EXPERIENCED MANAGEMENT

Skillz is a founder-led company as Andrew Paradise is CEO and Casey Chafkin serves as CRO. Management has deep experience in the gaming sector, technology entrepreneurship and investment banking.

Andrew Paradise

  • Co-founder and Chief Executive Officer of Skillz
  • Previously founded and served as Chief Executive Officer of AisleBuyer LLC, a mobile self-checkout company, later acquired by Intuit (for around 80 to $ 100m) and where he spent 7 months as Director of Payment Solutions
  • Earned his Bachelor of Arts from the University of Massachusetts Amherst

Casey Chafkin

  • Co-founder and Chief Revenue Officer of Skillz
  • Previously served as Vice President of Business Development at AisleBuyer LLC. Where he oversaw strategic partnerships and brand-oriented solutions
  • Earned his Bachelor of Science in Economics from Duke University and an MBA with Distinction from the Harvard Business School

Miriam Aguirre

  • Chief Technology Officer of Skillz
  • Worked as a software engineer for companies including Hub Analytics, Financial Engines and Hewlett-Packard
  • Earned her Bachelor of Science in Computer Science from Massachusetts Institute of Technology

Stephan Gerhard

  • VP of Finance at Skillz
  • Previously served as Executive Director at Nomura Securities, as Managing Director at of Bank of America Securities and as Vice President at JPMorgan Chase & Co
  • Earned his Bachelor of Science in Economics from the University of Pennsylvania

Trip Hawkins, the co-founder of Electronic Arts was a Strategic Advisor to Skillz from 2014 to 2019. Here is what he had to say on Skillz back in 2016:

“there has to be a set of platform features to let players have accounts set up the way they need, be able to communicate and broadcast or be broadcast, make payments, manage transactions and receive prizes. That’s where Skillz has a head start.” Trip Hawkins by Lora Kolodny for TechCrunch

Harry Sloan was the Flying Eagle Acquisition Corp Lead. He was also lead of the DraftKings SPAC and was previously the CEO and Chairman of MGM and built SBS Broadcasting into the second largest broadcaster in Europe.

A PIONEER IN ITS OWN GENRE

Skillz is a pioneer in its own genre, developing and pushing the mobile eSports format since its very beginnings:

  • Initially, many were sceptical at the idea of “mobile eSports”
  • It was thought that only dedicated gamers (on PC and consoles) would be attracted to this format
  • But mobile gaming took on and supported Skillz’ extraordinary growth, as Venture Beat reports

    “By 2018, Skillz had hit a $400 million run rate. Rivals like Sony and Amazon took Skillz on, but they faltered.” by Dean Takahashi for Venture Beat

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. Skillz has experienced rapid growth since its launch, growing its GMV from $ 20m in 2015 to $ 886m in 2019
  2. The market for mobile gaming and eSports is growing fast, driven by increasing user penetration, reduction in internet costs and innovations
  3. Its management has a strong entrepreneurial, technology and gaming track record
  4. It virtually invented its own format while its competition chose to focus on the PC and consoles segment

FINANCIAL CHECK

  • Gross Marketplace Volume (GMV) grew 76% to $ 411m in Q3 2020 versus $ 234m a year earlier
  • Net sales grew 92% year on year in Q3 2020 to $ 60m with net sales YTD reaching $ 162m, up 91% year on year
  • Gross margins stood at 95% (constant year on year) and gross profit increased by 92% to $ 56.9m versus $ 29.6m a year earlier
  • Sales and marketing expenses grew 151% to $ 73m
  • Loss from operations reached $ 28m up from a loss of $ 7m a year earlier
  • Current assets stood at $ 66.8m versus $ 40.1m in current liabilities and Skillz has no long-term debt

Through the Flying Eagle Acquisition Corp merger, Skillz got around $ 240m in net proceeds and has no debt

  • The company raised $ 848m through the SPAC, of which $ 608m went to early-stage investors
  • Around $ 690m came from the SPAC and $ 158m from follow-on investors

BENCHMARK'S TAKE

The Good

  • Skillz saw the potential for eSports in the mobile gaming market and the format rapidly gained traction as it attracted both players and developers
  • Skillz quickly understood that players of varying levels of experience want to play online, not only advanced players, and therefore developed a range of data-driven tools to match players and monitor cheating
  • Translating into high player retention (24% above industry average), above average revenue per user (ARPU of $ 6.3 vs $ 1.7 for Zynga and Glu Mobile) and longer time spent on games (twice the industry average)
  • Sales are growing at above 90% YoY growth rates all while gross profit expands, but growth is partially driven by large increases in marketing spending

The Bad

  • Game developers might build their own eSports solutions in-house and build their own “leagues” in order to retain players in their ecosystem
  • Skillz large increase in marketing spend may reflect slowing customer interest as the economy re-opens
  • Monthly Active Users (MAU) did not increase quarter on quarter and stayed constant at around 2.6m
  • Skillz is not cheap as it is currently trading at around 40 times sales, reducing the risk / reward ratio

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Onur Binay on Unsplash.