Skillz Inc. Earnings Call: Growth, Lawsuits and Risk

Skillz Inc. ((SKLZ)) has held its Q1 earnings call. Read on for the main highlights of the call.

Skillz Inc.’s latest earnings call balanced optimism with caution as management highlighted strong revenue growth and improving unit economics alongside persistent losses and legal uncertainty. Executives stressed disciplined execution, better monetization, and a landmark courtroom win, but investors were reminded of declining paying users, heavy litigation costs, and looming debt maturities that still cloud the near-term outlook.

Revenue Growth Rebounds Despite Quarter-on-Quarter Noise

Skillz reported Q1 2026 GAAP revenue of $29.0 million, up a robust 33% from $22 million a year earlier, underscoring renewed top-line momentum. While revenue appeared down 3% sequentially, management noted that adjusting for a prior quarter tax accrual release would instead show roughly 2% growth, suggesting underlying trends remain positive.

Monetization Gains Offset Softer Paying User Base

Average revenue per paying user rose about 7% quarter on quarter, and gross marketplace volume increased even as paying monthly active users declined. Management attributed this to stronger spend per player and better monetization of mature cohorts, positioning the business to extract more value from existing gamers while it recalibrates user acquisition.

Underlying EBITDA Trend Improves Excluding Lawsuits

The company posted a reported adjusted EBITDA loss of $13 million in Q1, wider than the $10 million loss in Q4 2025 largely because of legal expenses. However, excluding litigation-related costs, the loss narrowed to $7 million, representing roughly a 15% normalized sequential improvement and signaling gradual progress toward breakeven.

RZR Division Delivers Profitable Growth and New Channels

RZR, Skillz’s advertising and monetization arm, posted adjusted EBITDA of $2 million, marking its third straight profitable quarter and reinforcing its role as a growth engine. The unit expanded revenue with both new and existing advertisers and launched a Connected TV channel, broadening the platform’s reach and deepening advertiser relationships.

Landmark Papaya Verdict Creates Huge but Uncertain Upside

A unanimous jury found Papaya liable for false advertising and awarded Skillz $420 million in actual damages, the largest such award under the Lanham Act. The jury also issued advisory findings supporting additional disgorgement that could lift the total potential recovery to more than $1.2 billion, though final outcomes will depend on court determinations and future proceedings.

Solid Cash Position Supports Flexibility Amid Volatility

Skillz ended the quarter with $185 million in cash and equivalents, giving the company runway to pursue its strategy and manage short-term volatility. Management emphasized that this liquidity provides room to navigate legal developments and capital structure decisions while continuing to invest in its platform and growth initiatives.

Acquisitions Strengthen Platform and Owned Content Strategy

The company completed the acquisition of Beamable and bought popular titles Blackout Bingo and Domino’s Gold, moving to own and operate three of the top five games on its platform. Skillz continues to invest in its Pro SDK and infrastructure, aiming to deepen developer integration, raise engagement, and lessen dependence on third-party publishers over time.

Disciplined User Acquisition at Attractive Cost Levels

Management highlighted that user acquisition pricing is at its most attractive level in years, yet spending remains tightly controlled with Q1 user marketing at $8 million and UA at $3 million. The focus is on profitable growth by targeting higher-value, long-term players rather than chasing volume, even if that means tolerating near-term traffic pressure.

Cost Discipline Supports a Clearer Profitability Path

Q1 2026 net loss improved to $11 million, a 36% year-over-year improvement reflecting better cost control and operating leverage. Sales and marketing expenses declined 4% year over year, while R&D rose 5% to $5 million as the company maintained product investment, and overall trends point toward a gradually improving profitability trajectory.

Paying User Decline Highlights Growth Challenge

Paying monthly active users fell 9% quarter on quarter to 128,000, even though they were up 3% from the prior year, underscoring ongoing demand volatility. The sequential drop was mainly tied to reduced user acquisition spend, which led to fewer new cohorts and lower non-paying traffic, raising questions about how quickly the user base can re-accelerate.

Litigation Costs Weigh on Quarterly Profitability

Legal expenses tied to ongoing cases were a key driver of the wider adjusted EBITDA loss, pushing it to $13 million from $10 million in Q4 2025. Even after stripping out those costs, Skillz remains in the red with a $7 million adjusted EBITDA loss, showing that litigation is amplifying but not solely causing the profitability shortfall.

Near-Term Debt Maturity Adds Capital Structure Risk

The company faces $130 million of debt coming due by the end of 2026, creating a tangible refinancing and liquidity overhang. Management is exploring strategic options, including potential secured financing that could be backed by the Papaya judgment, as it seeks to manage obligations without derailing its operational progress.

Legal Outcomes Remain Material Yet Hard to Value

While the Papaya verdict is a clear win, actual collectability will only be known after the court finalizes disgorgement and other remedies, and further legal processes unfold. Skillz also continues to incur costs and uncertainty from additional litigation, including another case against a separate counterpart, leaving investors to weigh sizable potential upside against ongoing risk.

Profitability Still Out of Reach Despite Momentum

Skillz remains unprofitable on both a GAAP and adjusted basis, with adjusted EBITDA and net loss still in negative territory despite improving trends. The company must continue balancing investment, legal costs, and growth initiatives to translate unit economic gains into consistent, sustained profitability.

Title Concentration Creates Future Revenue Exposure

Management acknowledged that the platform remains concentrated in a handful of major titles, some of which have contractual rights expiring in early 2027. The expected departure of key games like Solitaire Cube and 21 Blitz underscores the importance of the owned-and-operated strategy, as losing large partners could pressure revenue if replacement content underperforms.

Guidance Points to Gradual Profit Gains and Traffic Stabilization

Looking ahead, management expects underlying profitability to improve into Q2, with adjusted EBITDA losses shrinking as litigation-normalized performance strengthens. Paying users and traffic are projected to be flat to slightly up as UA spend is increased selectively at favorable economics, while the company awaits a pivotal court decision on potential Papaya recoveries and considers capital options tied to that outcome.

Skillz’s earnings call painted a picture of a company at an inflection point, pairing solid growth and better unit economics with significant legal and financial overhangs. For investors, the story hinges on whether management can turn incremental profitability gains and a historic legal win into durable cash flow while managing user growth, content risk, and the approaching debt wall.