Firy Inc. (SKLZ) Earnings Call Transcript & Summary

Hey, good afternoon, everybody. Thanks for joining us at our Second Annual Global Interactive Media Conference. I'm Andrew Uerkwitz, senior U.S. analyst covering interactive media. With me today, it's really my pleasure to have Ian Lee. He's the new CFO of Skillz. Prior to joining Skillz, he served as Head of HR -- Head of IR at Airbnb, sorry, a long, long day, Head of IR at Airbnb, Atlassian, as well as Trulia and a few others. Prior to that, he was on our side of The Street with banking roles at Morgan Stanley and UBS. Ian, it's a real pleasure to have you join us. I appreciate your time today.

Thanks, Andrew. Great to be here.

You reported earnings this week or recently. Just give us a -- real quick, what are the 1 or 2 things investors should have taken away from your earnings call?

Yes. Look, I think we had a really exciting quarter. We did many things. I think one thing that we support out was we had the official launch, which we'll probably talk a bit about today about the new game Big Buck Hunter: Marksman, which we're going to be really excited about to get that out there. I think we've also got some of the releasing -- things coming in the content side. So we announced that we soft launched another game called Trivia Crack Payday, so just a couple of things there. And also, look, I'd say on the internal marketing side, I think we had some good developments with how we approach the environment in terms of seeing some moderation in cost per installs, or CPIs, and that helped the marketing team go out and were able to be effective and helping grow the user base, in addition to what we did with Big Buck. So I think some really excitement things we did in the quarter.

Got it. No, it's fair. I think you guys have a really interesting business model, still very early. So let's kind of dive into some of these bigger trends. I'll start with Big Buck Hunter: Marksman, really provided a nice uplift in the quarter. It's somewhat of a -- I think it's somewhat of a different game than what the other games are on the platform and how it may behave, the size of the potential audience. One, how is it still doing now? What's the engagement levels been like? I know it's very early still, but how do you feel about it today?

Yes. It is still early. But again, it is very exciting. So I'd say that Big Buck, at the gate, was strong. Actually quickly became the top games in the sports category in the App Store. And look, we're really excited about where we can go and the potential of the game. It's really one of the first big first-person shooters games in our platform. Now obviously, we can't be more specific about where it might hit in terms of growth, et cetera. But again, at the [ schooling ] stage, very, very happy about it so far. And look, I'd say more broadly, I think we're still very early in just penetrating the broader market opportunity ahead of us. So when you look at most of the games in our platform and where the most popular content is today, it really falls into the card and board categories of gaming. And there are obviously many other casual categories out there, such as trivia, word, arcade, and so we made good progress there. In addition to Big Bucks, I just alluded to there, we signed an agreement with the game -- with the Trivia Crack franchise in the trivia category. And just a little about them, Trivia Crack is the #1 trivia franchise in the world. It's actually -- it's really well known. It's probably got more than 45 million monthly active users. So -- and really excited about doing more with them. And then I think over the medium term, you might remember we acquired -- put an investment into a company called Exit Games. Recently, that's going to allow us to have access to their technology, that allows us to get more into the mid-core and core genres with things like multiplayer, fighting and racing. So we're really excited about that as well.

Sure. And as we think about games like Trivia Crack Payday and Big Buck Hunter, because they do come from bigger audiences, should we assume that the player behavior will be similar to what we've seen in some of your other games? Or will we see very different player behavior as far as monetization, engagement go as we start to model this out in the next 12, 24, 36 months?

Yes. Look, I think it's too early to say. We're really excited about working with some of these really great platforms out there like the developers and builders of Big Buck and Trivia Crack. It's just probably too early to say that, but the fact that they obviously have well-known franchises and user bases out there, that's certainly positive that we hope to partnering with. But again, it's probably too early to give you a specific answer to it at this point in time.

If I flip the question backwards and say, from a user acquisition strategy, are -- is it different with these bigger games than it is with your traditional games?

Yes. Again, I'd say, look, having relationships and partnerships with different developers who may already have a franchise, which may be well known, like the ones I just mentioned, that certainly, hopefully, will be something we can tap into. Again, just the -- I'd say it's early, so I wouldn't want to get the cart before the horse. But certainly, having that as a partnership with a well-known brand, certainly, I think there's some positives there, for sure.

Got it. You mentioned your partnership around synchronous gaming. Can you talk about where that's at? Is there -- how should we kind of frame the time frame around seeing some of the future titles or maybe just a progress report on more synchronous gaming for a wider range of genres?

Yes. Look, I think we -- as I mentioned, we made that investment in Exit Games, and they have, I think, for the Photon Engine which does allow developers to bill that multiplayer real-time synchronous gaming. And so I think there's certainly a lot of potential there that the Photon Engine is now fully integrated, and it's available for developers to start thinking about how they might develop today. So again, very excited for that. It is early days. I'd say that we're confident that we have more and more developers think about monetizing through, obviously, our platform and also the technology they've provided. So just a reminder, the game development platform, yes, does took time. It's probably generally between 18 and 24 months. But I think what the investment does is that technology which we can now provide through Exit, we probably do that, I don't know, probably 2 or 3 years faster than what we were able to do if we were to build our own. So I think we're really excited about that. But again, it will take some time. So I'm really excited that we can now offer that to developers as they think about building those kind of games in the mid-core and core categories and again, multiplayer, real-time and fighting, racing, shooting, et cetera. So yes, really excited about that.

And I'm just not -- I'm not an expert kind of at the building part of it. As we -- as you think about -- it's fully integrated with your own platform now. Are there additional features you guys will continue to add on? Because one of the things I always think about is like the sky is the limit here as far as small tournaments, big tournaments, leagues, one-on-ones, things like that. Where do you see yourself today versus where you want to be on some of the broader monetization opportunities on the competitive side?

Look, I'd say just continue to build even a better platform and technology for our developers to build great games. I think, first, we want to ensure that we just get more high-quality developers, and I think quickly you're seeing some of the progress there. And offering a great platform with the right technology is a key part of that. So I think that's still definitely a focus there in terms of how we can build and get more of those developers to build great games they can scale. And that's obviously a really big change opportunity for us to monetize and be successful with our developers. I do think that as we get more developers on to build these games, I think we have an opportunity again to get more of these real-time multiplayer synchronous games be on the platform. And hopefully, down the line a few years, some of the biggest games on our platform will be those kind of games. And so I think there's a really big opportunity,and we're still very early on that. And just continuing to help the developers there and also how we use that to get more and more users on the platform and then how we get those users to be again more engaged, play more, retain better over time, I think there's opportunities there. So many different avenues that I would point to.

And then, aside from the game side, clearly, there may be a social side to it. You are a platform. How does Skillz think about building more social function into the platform around -- is that something the game should be doing? Is that something Skillz could be doing? And any kind of a progress report there on the social side of the platform.

Yes. We think about that a lot. I think there's certainly things that we can look to build on our platform that we can then offer to the developers. So I think, absolutely, we do think about that because you can get users to be more engaged and communicate and do more with each other. That's certainly a win for us, so we'll think about how we might build that to the platform. And also what technology we can help the developers do to build into what they're building, so I think it's both. But absolutely, that is something we're thinking a lot about. And again, we'll be -- again over the next period of time, we'll be focused there. And as we have more to share, we'll do that.

And then just kind of getting to the nitty-gritty of kind of the business model, the spending on UA and engagement marketing has been fairly elevated and obviously because you're growing. How should we think about the trajectory of that in light of building a bigger user base, adding -- but also adding more games and trying to get -- and potentially bigger-scale games? How should we think about the trajectory of the UA spend?

Yes. I think let me just take step back because I think for those who are less familiar with our company, over -- the overall sales and marketing bucket, there's 2 kind of broad buckets within that. You've got the user acquisition investment, which you described there, which is really focused on acquiring new users. We've also got the engagement marketing bucket, which is much more focused on the engagement and monetization of the existing user base. So on the user acquisition front, we are going to be -- continue to be aggressive there when acquiring new users. A couple of big reasons, one, we're very, very early in this market. There's 2.8 billion games globally. I think the overall mobile gaming spend is something like, depending on which report, $85 billion plus growing to, call it, close to maybe not double, but close to double that in the years to come. So there's a big opportunity there. Also, you can see from some of the LTV data we've shared in the past that the cohorts in our platform tend to be fairly long life. We tend to be able to monetize them over a period of -- over many years. And so if we can be aggressive and acquire them today against that big market, there can be a payback over a long period of time. So we obviously want to continue to be aggressive on empowering users. But look, we'll still apply discipline in how we're doing that and returns we're getting from them. On the engagement -- [indiscernible] yes, sorry.

And then...

Yes, sorry.

No, go ahead. My next question was on engagement marketing, so...

Yes, you're actually going to go -- thanks for prompting me. I'd say on that front, we, again, have looked a lot again -- have thought a lot about engagement marketing with the existing user base. And we've done a lot of testing and experimentation, different forms and initiatives of how we can do that.and certainly started to do that more starting Q2 of this year and do the same in Q3, likely would be the same in Q4. And what we noted in the shareholder letter we shared last week is that we want to look at all the things we've done this year in the past several quarters and think about what are the learnings that we can get from all these different tests and experiments and all the different kinds of initiatives we've run and how can we use that going forward starting in 2022 to focus on what we believe is performing the best and is most effectively driving engagement and monetization. And that, we're still getting early and think about that, but what we might do next year start to reduce some initiatives where we feel that it isn't really driving those things as effectively. So again, what we noted is that, that could lead to a reduction in overall engagement marketing as a percentage of revenue as we get into 2022.

Got it. Got it. No, that makes sense. And just kind of on that point, and again, I know it's really early because Big Buck Hunter has been out for, I think, less than 6 weeks basically. But when you have a game that has that kind of brands, should there be -- should we assume that engagement marketing would be either easier or more effective, I guess, with some of these bigger branded games?

Yes. I think just the great thing about it is that engagement marketing isn't a single program. It's really different kinds of incentives to the end user, marketing programs. You have various things, such as leak payouts, trophies, bonus cash. There's just many different elements there, and these may encompass initiatives of both newer and more established players and games. So again, just to recap again, I was mentioning, we've done -- tested a lot of those, started in Q2 of this year. And so we'll look to leverage learnings. And that may be for both newer and more mature games. So I think there's a broad range of things we may look at there. So again, this really encompasses many things rather than kind of just more discrete programs necessarily.

Sure. Got it. Got it. You also -- it's been a busy year for you guys. You guys also acquired Aarki.

Yes.

How is that integration progressing kind of against your expectations? And just remind us, what are the tangible benefits that drew you to making that acquisition?.

Yes. We're really excited to have Aarki as part of the Skillz family now. We did that deal in July of this year. They're part of the family now. So the integration is done, so we're glad that they're a part of the family. And I think there's a lot of potential benefits down there over time. I think, overall, I think we believe that, over time, they will help us just be more effective in terms of how we go and optimize how we play users and be effective around that. So high level, I'd say there's a few things to point there in terms of why we will expect them to acquire users more effectively and efficiently over time. So one of those is that over our user acquisition spend today, some of that does go through different demand side platforms, or DSPs, different ad tech networks. Aarki is one of those. And for those other third-party DSPs that we're probably giving up, call it, 20% to 30% fee or margin to those. So as we move gradually more of the spend to Aarki over time, we obviously got to capture that and put that back into the business. And so just to clarify, the integration is done with Aarki. But the migration of spend from other DSPs to Aarki, that would be great. They'll take several quarters. I'd also say that with Aarki, another benefit there is that we have a lot of the data from the games that are on the platform, and we can hopefully use that data to make the algorithms that Aarki uses to go and look at where they get impressions and users more effective over time, so really kind of closing the loop of data to make Aarki more effective. And again, net-net of all that, over time, as we again will hopefully be more efficient in terms of how we acquire users and also hopefully acquire better users to begin with.

And is there an opportunity for -- to open up new revenue streams with Aarki, whether that's to bring ads into some of the free-to-play tournaments or anything along those lines? How do you think Aarki could ultimately be utilized across some of the different opportunities you have?

Look, I think there's certainly a possibility. I probably don't want to put the cart before the horse because we just finished integrating them. But I think there's certainly opportunity there. I think there's certainly a lot of use today which we do monetize very effectively. There's obviously certain users who are not paying today. So how we go about and think about other monetization streams, such as advertising, down the line. Absolutely, we think about that over time. And could Aarki play a part in that? Certainly. It's, again, one of the things that we may look at. Right now, we're just focused on finish the integration, start moving more of the spend to get the user acquisition more cushion. But yes, there could be an opportunity down the line.

Got it. And then as we think about just the -- I mean, one of the reasons I assume you bought Aarki is to help provide more insight on users and more effectively run ads, probably somewhat in response to some of the IDFA headwinds that nearly everybody in the industry is facing. Where do you think we are in kind of like -- are you ready to say that you're in a great place and know how to effectively do this going forward? Are things moderating? Kind of like what's the IDFA update today?

It's a hot topic, yes.

And we can spend the whole 40 minutes just on this question.

I think so. I'd say like the -- at least, for us, I think the IDFA rollout and any other changes Apple's making to application tracking, I think, from our point of view, for us, again, has been probably the largest that we expected. And certainly, I think our team did a really great job just preparing for that. As you saw from our report last week, we did see, at least, again, for us, some moderation in the CPIs, the cost to install prime users. And I think that was to do with -- again, we've had some more tenured revenue leadership team onboard now. We had some additional media buying tools, which allowed us to be effective in how we bid for users in certain networks. We had some traffic initiatives around things like search engine optimization that allowed us to improve our organic traffic. So I think there were so many things we did around there. Obviously, over time, we would hope that Aarki helps us with the overall, again, ability to acquire users effectively. So maybe not quite a question and answer you're thinking around IDFA. Again, I'd say we were able to get around that, at least this quarter, and we had some other things going on which we're able to be effective in how we acquire users. I wouldn't necessarily going to say for the industry, that's the case. But at least for us in Q3, we were able to get through that fairly effectively.

Got it. Got it. And then kind of just switching to the other platform, Android. Any updates on becoming -- getting similar kind of status with Google and Android that you have on Apple? Obviously, your platform is a lot easier to use on iOS. So any status updates of how we should think about the Android ecosystem?

Nothing to report today, Andrew. I think, obviously, reaching -- getting to the Google Play Store would obviously be a meaningful unlock for us. I think you look at Google Play, they have changed their terms of service to allow distribution of license gambling applications. So maybe online, if they're comfortable with those, there might be a path to distributing e-sports applications in there. Obviously, in terms of specific timing, et cetera, that's probably a better question for Google. But still, growing pretty well today, but obviously, that would be an unlock for us if we could get it.

Yes. And kind of, I guess, along the broader lines of entering new markets and whatnot, any thoughts on leveraging NFTs as prices or switching over to like just thinking about metaverse and NFT, it's been -- question comes up in every single call, so I figured I'd bring it up for you guys -- is this an opportunity for you anywhere within the program?

Yes. Nothing to [ point ] today. It's certainly something which I think we've thought about in the from of internal conversations. So down the line, we may look at that, and there's obviously many things that we looked at, but that could be something we may look at down the line but nothing I could point today. I think there are many interesting developments in the broader technology universe like that which we will consider and see where it makes sense down the line and how we prioritize some growth opportunities versus other.

Yes. And just reminds me of a story. You may not be familiar with it, but there was an e-sport tournament , I want to say, back in 2013 or '14. And the prize was first place was $100, second place was $50, third place was -- or 25 bitcoins.

Would have been...

Yes. So like -- so crypto is not necessarily due to the e-sports, but you should probably get your prizes in order.

I think again, we'll keep an open mind for many of those things, crypto, NFTs. I think we've -- again, I think with the -- being a relatively young and nimble company, we can still keep our minds open for many of those things. So we're looking a lot of things again, just nothing I can report comfort.

Yes. And then just kind of like a personal question. You're new to the CFO role. You're still kind of get acclimated to the seat. You're looking across numerous growth opportunities over investment areas. How are you kind of prioritizing these things today? And like what are you spending your most time on?

Look, there's obviously a myriad of things and a really attractive shopping menu, if you will, of things that we're looking at. And without giving too much away, I think it's probably some pretty obvious things I can at least broadly talk to. Just firstly, just how we make the platform better and get more high-quality developers on the system because we can get more high-quality names on who can build great content, that obviously has great meaningful effects for us then also again, that allows us to get users on. So I think that's really key. Obviously, we've talked a lot about in the marketing side, what we're doing to become more effective and efficient there over time with Aarki, with engagement marketing, with user acquisition, I think. And again -- but again, the content is probably a big one. And then there's many other growth vector, such as international, et cetera, which we're thinking about. So those are all key for us. There's many other things there. And then also add to one of your earlier questions about Exit and other things, we are -- most of the games today are in the casual genres. The card and board, we hopefully, we have an entrant -- strong entrant with Trivia Crack Payday in the trivia category. We'll also get into the mid-core and core categories where you've got things like multiple real-time racing, fighting and shooting, and Exit will certainly be a part of that. I think that's -- it's a key there. So I could go on and on. But if I think about just to share with you today, some of those things are top of mind would be along those.

And then I guess, flip the question over, what kind of keeps you up at night, if anything?

I think like many folks in technology, it's really hiring, how we get great talent. It's really the key because the war for talent across every sector right now and definitely technologies is as tough as ever. So that's, for me, personally, I spend a lot of time thinking about that. I'd note that we just continuing to add to our team where we just hired a new Chief Product Officer. We're really excited about Vatsal who just joined recently which we shared that newsletter in the last couple of weeks. So it's a great addition for us. But just hiring, senior but also mid and junior, just a key thing. I know I'm not alone there, but that really does -- I spend a lot of time thinking about that, yes.

Yes. No. That's a popular answer right now. It seems like if somebody's job hunting, it's probably the right time. And I guess the -- another question I wanted to ask you was kind of as you think about the different -- trying to get more games on the platform and the different genres, is there anything you could do differently? Or maybe I'll word it differently. Like any appetite to go and accelerate that by getting involved with the actual development, building custom games, having somebody build a custom game that fits under the Skillz umbrella? Or do you want to stay completely agnostic as a platform?

Look, I think, obviously, the path to date has really been to just focus on being a platform and not really be -- getting into the game of owning, developing content directly. I think that's obviously something we've stuck to and never seen ever over time, but that's really been the path here. And I think just continue to be a platform, which we can help developers be successful is the key for us. Exit was obviously just a recent example of that. But getting many high-quality developers into the platform for that, that's really the key focus for us right now and both from a technology standpoint, [ building ] a platform, also getting the word out to more developers there who may not have considered the Skillz-based competition layer is the way to monetize, I think that's really key for us. And being almost the picks and shovels, to use the old classic term, of how those developers are successful, I think that's really been the focus today. And right now, that's a priority.

Got it. Got it. Ian, I mean, we'll wrap up on this last question. What -- as we come back next year, what's the like 1 or 2 things you want to be able to say, hey, look, this is what I said. It's done. Now let's think about the next year. So what's the 1 or 2 things you really want investors to focus on between now and next November?

Yes. Again, just the work we're doing to ensure that we, again, are working for more high-quality developers. And again, we're really excited about that because again, as you can just see from some recent games, we've got really great developers who are billing games, so just making sure we get more progress in areas like that. I'd say just continuing to, again, use the technology we have now to help more developers also then get into both more in the casual categories we have today and other genres. I think those are 2 things I can call out now. Many other things I'd call out, but I think just if had to pick 2 off the top of my head, those are the ones I would pick.

Got you. And then one -- actually, one question just came in from an investor on the call. International expansion, we didn't talk about international expansion. What's the progress report with that?

Yes, sorry, I just touched really briefly before. So the goal is still very much there. I think 90% plus of our business today is in North America, and I think getting to other markets because there's many, obviously, users and players out there beyond just North America is key. So on track to be the first -- first protocols is India, on track to launch in Q4. The focus there is really, first, clear on with some of the infrastructure around payments and currency, and then we'll go from there. But India is not just the only place we'll look over time. I think there's many other places that we will focus on externally. So I think that's still on track, yes, for India this quarter.

Great. Ian, thanks for the update. I want to tell everybody on the line that at 2:15 -- or no, 1:30 Eastern, 6:30 London time, we are hosting a Big Buck Hunter tournament. So the details are in the conference book. Look it up, and we hope to see everybody there, and happy hunting. Ian, thanks again. Always a pleasure. Always a pleasure.

Thank you. Everybody, please try Big Buck tomorrow, I think you're going to enjoy it.

Exactly. That's right. Thank you.

Thank you.

Yes. Bye.

Bye.