Skillz Q1 Earnings Call Highlights

• Skillz Inc (NYSE:SKLZ) Stock a Buy: An Esports Platform with Upside

Skillz (NYSE:SKLZ) reported higher year-over-year revenue for the first quarter of 2026 while continuing to post losses, as management highlighted improving underlying profitability, a profitable contribution from RZR and a major legal victory against Papaya Gaming.

Chief Executive Andrew Paradise said first-quarter GAAP revenue was $29 million, down 3% from the fourth quarter and up 33% from the prior-year period. Adjusted EBITDA was a loss of $13 million, compared with a loss of $10 million in the fourth quarter. Paradise said the wider sequential adjusted EBITDA loss was driven by higher litigation-related expenses.

Excluding litigation-related expenses, adjusted EBITDA was a loss of $7 million, which Paradise said represented a 15% sequential improvement on a normalized basis. RZR generated adjusted EBITDA of $2 million, marking its third consecutive quarter of profitability.

Paying users decline sequentially, but monetization improves

Skillz reported paying monthly active users, or PMAU, of 128,000 in the first quarter, down 9% sequentially and up 3% year over year. Paradise said the sequential decline was partly due to lower user acquisition spending, which resulted in fewer new user cohort additions.

Management said the company is emphasizing higher-quality users and stronger unit economics rather than broad user growth. Paradise said retention among more mature cohorts improved from the prior quarter, and average revenue per paying user increased 7% quarter over quarter.

In response to a question from Jefferies analyst Ed Alter about gross marketplace volume rising despite lower paying users, Chief Financial Officer Gaetano Franceschi said Skillz has been focused on “high-paying users” and “long-term users.” He said that while PMAU was down, GMV and ARPU continued to grow.

Paradise added that the company had reduced user acquisition spending in the quarter while tightening its focus on profitable acquisition, shorter breakeven periods and better one-year paybacks. He said Skillz was “thinking about how to thoughtfully expand on marketing” after reaching what he described as a very tight level of spend exiting the quarter.

Papaya verdict remains a central focus

Paradise spent a significant portion of the call discussing Skillz’s litigation against Papaya Gaming. In April, a unanimous jury in the U.S. District Court for the Southern District of New York found Papaya liable for false advertising under the Lanham Act and deceptive practices under New York law, awarding Skillz $420 million in actual damages.

Paradise called it “the largest false advertising award in U.S. history under the Lanham Act.” He said the jury also made advisory findings supporting disgorgement of either $719 million based on Papaya’s profits or $652 million based on Papaya’s cost savings, though he emphasized those are alternative theories and will not be added together.

The court will determine whether to award disgorgement and in what amount. Paradise said the Lanham Act allows the court to enhance actual damages by up to three times the $420 million award, while any disgorgement award would not be subject to a cap on enhancement. He said the total potential award ranges from $420 million to more than $1.2 billion, depending on the court’s determinations.

Paradise said Skillz brought the case as part of its “Fair Play Initiative,” arguing that the skill-based competitive gaming category depends on players competing against real human opponents. He said Papaya’s internal documents showed bots were deployed at scale, with bot scores determining outcomes without disclosure to players.

Paradise also referenced Skillz’s earlier litigation against AviaGames, noting that a federal jury awarded Skillz $42.9 million for patent infringement in 2024 and that Skillz later settled related cases with Avia for $80 million.

Looking ahead, Paradise said Skillz expects the court to determine the final disgorgement award in June. He said the parties have been ordered to engage in settlement discussions, and Skillz is also evaluating alternatives to secure capital against the judgment while monitoring whether an appeal bond or other secured capital will be required.

RZR and Beamable positioned as part of broader ecosystem

Management outlined three operating priorities for 2026: strengthening demand and engagement, executing a more efficient go-to-market strategy and improving platform performance and infrastructure.

Paradise said Solitaire Skillz continues to scale as a top title on the platform. He also pointed to Skillz’s acquisitions of Blackout Bingo and Dominoes Gold, saying the company now owns and operates three of the top five titles on its platform.

RZR, the company’s performance marketing business, added new advertisers across gaming, consumer applications, retail and entertainment during the quarter, Paradise said. RZR also launched a Connected TV business, which management said opens a new channel for advertiser spending. Paradise said RZR continued to migrate to more advanced neural network models and improve training efficiency and prediction accuracy.

Skillz also completed its acquisition of Beamable in the first quarter. Paradise described Beamable as a developer platform providing game services and backend infrastructure that Skillz expects to use across its products over time. He said Beamable will continue serving developers and studios that used the platform before the acquisition.

Expenses, cash position and debt

Franceschi said first-quarter research and development expenses were $5 million, up 5% year over year, reflecting continued investment in Skillz and RZR. Sales and marketing expenses were $17 million, down 4% year over year. Within that total, end-user marketing was $8 million and user acquisition was $3 million.

General and administrative expenses were $19 million, up 2% year over year. Net loss was $11 million, improving 36% from the prior-year period. Franceschi said the company ended the quarter with $185 million in cash and cash equivalents and $130 million of debt outstanding due by the end of 2026.

As the debt approaches maturity, Franceschi said Skillz is evaluating “a range of strategic alternatives” to optimize its capital structure. He said management believes the company’s balance sheet remains healthy and that Skillz is managing capital prudently as it works toward sustained profitability.

Management discusses owned content strategy

During the question-and-answer session, analysts asked about Skillz’s shift toward owning and operating more games on its platform. Paradise said owning and operating games represents a shift from the company’s historical reliance on third-party and second-party developer relationships, though he noted Skillz has invested in platform content for years.

Paradise said owning games in categories with relatively little future development, such as solitaire, can create stability and provide a consistent offering for the platform. He compared the strategy to approaches used elsewhere in the gaming industry, citing Epic’s Fortnite and Valve’s Dota 2 and Counter-Strike as examples of gaming platforms that also operate major content.

Asked by Cantor Fitzgerald analyst Bharath Nagaraj about user acquisition costs following the Papaya verdict, Paradise said it would be difficult to directly link the lawsuit outcome to customer acquisition costs. However, he said Skillz exited the first quarter with the best user acquisition prices it had seen in multiple years and is considering how to scale spending where prices are attractive.

About Skillz (NYSE:SKLZ)

Skillz Inc (NYSE: SKLZ) operates a mobile e-sports platform that connects game developers, advertisers and players through skill-based competition. By integrating its software development kit into a variety of casual and midcore mobile titles, the company enables in-app tournaments and head-to-head matches in which users compete for virtual or cash prizes. Skillz's marketplace also offers real-time leaderboards, live events and social features designed to enhance player engagement and retention.

The company's core offering includes developer tools and analytics that help game studios monetize through entry fees, in-game purchases and ad revenue sharing.

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