Skillz targets six areas for future growth. In this section, I will present them and give my opinion on them.
1) Growing the home market by investing in marketing: The company says it only reaches 2% of mobile gamers in North America, which at first reads like the goal is to reach 100%. I think Skillz can continue to grow in North America. Having said that, surveys indicate that only 10% of US gamers are interested in wagering. Platforms like Skillz are still in a relatively early stage of acceptance and the surveys may not be representative at all. Even so, the addressable market for Skillz is presumably only a fraction of all mobile gamers in North America.
2) Expanding the content on the platform: Currently, mostly “casual games” such as solitaire, puzzle games, and bingo can be found on the Skillz platform. The management is striving for an expansion into other genres and speaks of “everything from first-person shooters to racing to real-time strategy games”. It was recently announced that Big Buck Hunter would be adding the Skillz SDK, described as “Skillz’s expansion into the first-person shooter (FPS) genre”. You might want to take a look at the game. In my opinion, the game does not belong in the FPS category and so this step does not convince me that real shooters like Call of Duty or Battlefield will be successfully integrated on Skillz, especially since they are already operating very profitably. It has also to be said that there was a comparable partnership with the developer in 2014, so the deal is a “second attempt. Another obstacle to attracting larger successful games is the condition that Skillz owns the data, as data are seen as an important strategic asset in the industry. If I were wrong here, I would also underappreciate the potential under (1). Also, Skillz recently announced a partnership with the NFL, under which game developers can now apply to develop a game under the brand with appropriate financial support from the NFL. The game is expected to launch in spring 2022 at the earliest.
3) International expansion: Skillz generated approximately 90% of 2020’s revenue from users in North America, while the international market would be approximately four times larger than the North American. According to gaming research platform Newzoo, North America makes up about a quarter of the global gaming market, which equals $40 billion in revenue across all platforms. Another quarter comes from China and I can’t imagine a platform like Skillz’s going to get approved in China. Around half of global gaming sales come from mobile games, although the platform is slightly less penetrated in the USA and more penetrated in China. However, Skillz is aiming to enter the Indian market in 2021, where the monetization of mobile games is comparatively low due to the lower disposable income. Around 440 million smartphone users live in India and around 140 million of those play mobile games versus 210 million in North America. The market growth in India exceeds the US market by a wide margin. In India, there are already some companies that focus on skill-based games. Tencent-backed Dream11, for example, focuses on fantasy sports such as cricket, hockey, football, kabaddi, and basketball and has over 80 million users. The average ticket size on their platform is 30 IRN (~$0.35), while in the average Skillz tournament, each player wagers $1.55. The company’s business model looks a bit different than that of Skillz. Winzo, another Indian player in the field, reaches 30 million users with 70+ games and is comparable to Skillz in terms of the type of business model. On Winzo, users pay even smaller sums of INR 2 - INR 25 to participate in real-time multiplayer games and win prize pools, although that can be a result of the focus on lower Tier cities. However, the potential in India seems to be very large, as Winzo users are clocking over a billion gameplays a month vs. ~170 million on Skillz. It must be said that these are startups that are less well funded than Skillz and Winzo was founded as recently as October 2016 with raising $18 million in the Series B round in September 2020. The regulatory environment in India will be captured in the section “risk factors” as well.
4) Increase brand and influencer partnerships: Management sees a significant opportunity to build partnerships with brands to sponsor tournaments on the platform. As the example of the NFL mentioned in (2) shows, brands are seeking new ways to engage with existing and potential customers online. As noted above, more than 80% of GMV was paid out in prizes in 2020 and if brand advertisers were to be sponsoring those prizes, that would drive reach and profitability for Skillz. Given the business model, I would expect brands to be cautious, but there will certainly be some interest in partnering with Skillz if it fits the brand’s image, which should mostly cater to sports brands. If you’ve ever played Fifa Ultimate Team you will know that the FIFA doesn’t care about gambling.
5) New monetization models: As the games on the platform can also be played for free, just 16% of the users entered paid contests in 2020. Skillz added monetization through advertising in their SDK as recently as September 2020 to monetize the remaining 84% of the user base. The management targets a monetization at the industry level, where the average revenue per daily active user from advertising ranges from $0.03 to reach $0.15.
6) Acquisitions: Although Skillz develops the platform organically for the most part, smaller acquisitions could be made every now and then, e.g. to incorporate new features more quickly.
There is an opportunity for another decent growth spurt. The company currently earns the majority of its sales on Apple’s App Store. That is due to Google Play’s terms of service, which treats games with prize money as gambling and does not allow such apps to be distributed through the Google PlayStore. Skillz is available on alternative app stores such as the Galaxy App Store or can be downloaded directly from the browser. As already got clear from Epic’s lawsuits against Google, the user is shown security risks several times on the way to such a download. However, on the Q4 earnings call CEO Andrew Paradise pointed out that “even without the Play Store, we’ve been growing Android revenue and our installed base are at twice the rate of iOS on alternative app stores.” I suspect legalizing the Skillz platform on Google Play would still provide a certain upside as Galaxy Store app downloads overall are around 5% of those of Google Play. It looked like the tide was turning here, as “Google has hired a head of US sports betting in a newly created role as it considers opening up the Google Play Store to real-money gaming (RMG) apps in the States.
” However, Google recently updated the Developer Program Policy and still does not allow “games that accept money and offer prizes of cash or other real world value