Good afternoon. Thank you for attending today's Skillz Third Quarter 2021 Earnings Conference Call. My name is Nai, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions- and- answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to your host, Stefan Gerhard with Skillz. Thank you. You may proceed, Mr. Gerhard.
Thank you, Nai. Good day and welcome to the Skillz Third Quarter 2021 Earnings Conference C all. I'll proceed shortly by reading our forward-looking statements and non-GAAP measures, immediately followed by brief introductory remarks and then a question-and-answer session. Hosting the question-and-answer session today, we have Andrew Paradise, Chief Executive Officer; Casey Chafkin, Chief Revenue Officer; and Ian Lee, Chief Financial Officer of the company. We hope you've had a chance to read our press release and stockholder letter, which we published earlier today, both of which are also available on our investor relations website. We have also posted to our website a short video of our CEO discussing our business highlights this quarter. Some of management's comments today will include forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements, which are usually identified by the use of words such as will, expect, should or other similar phrases, are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to the company's SEC filings for a more detailed discussion of the risks that could impact future operating results and financial condition. During the call, management will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2021 earnings release.
With that, I'll turn the call over to Andrew for some brief opening remarks.
Thank you, Stefan. Good afternoon, everyone, and thank you all for joining us today to discuss our third quarter 2021 results. In case you haven't had a chance to review our Q3 stockholder letter, which just published to our investor site this afternoon, I wanted to share a few key highlights from the quarter before we get started with your questions. We're definitely very proud that we share the news with you that we generated 70% revenue growth year-over-year, led in large part by 47% year-over-year growth in paying monthly active users. The company was able to increase user acquisition marketing investment to acquire new users while maintaining high efficiency as several initiatives during this quarter drove cost per install or CPI lower from prior quarter.
This quarter, we also officially launched Big Buck Hunter: Marksman, the first mobile version of the iconic arcade shooting game that we all know and love. It was celebrated at the 14th annual Big Buck Hunter World Championship in Chicago in the convergence of the online and offline worlds for the first time. Throughout our investment with Exit Games, we were able to integrate advanced synchronous technology onto the Skillz platform through Exit Games' Photon Engine. Its market-leading multiplayer synchronous game engine has accelerated our ability to support popular first-person shooter and racing games by several years. We also announced a deal with our game developer, Etermax, to bring the most popular trivia franchise in the world, Trivia Crack, to the Skillz platform.
Finally, we grew our executive team with the addition of Vatsal Bhardwaj, who joins us as Chief Product Officer from Amazon, where he led the teams responsible for game development services, including transforming how large-scale multiplayer games are developed, operated, scaled, and distributed using the cloud. At Skillz, Vatsal will be responsible for leading our product development teams. Before taking everyone's questions, I just wanted to take a moment to thank everyone on our team that makes it all possible. The Skillzians who work tirelessly every day to create the future of competition, to build out the competition layer of the Internet, and of course, for our developer partners who, through their games and their creativity, they bring us imagination and fun. With that, let me open up for questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from Michael Graham with Canaccord. Please proceed.
Hey, thanks a lot. Thanks so much for all the information in the shareholder letter. I wanted to dig into Aarki a little bit. You know, you mentioned that your guidance for the year doesn't really, you know, kind of, incorporate any benefit, I guess, on the, on the marketing side from Aarki yet. You know, you do have plans to kind of shift your spend there and get that integrated. I wonder if you could just give us some commentary around the expected pace of that integration. Then, you know, you did have a comment at the end of the letter talking about the possibility of seeing some leverage on UA spend next year.
Just wanted to kind of maybe get, you know, now that you've had a chance to kind of get more deeper into Aarki, get a little bit of a sense of your updated thinking on UA versus engagement, you know, spend, and just how you're thinking about that whole equation going forward.
Yeah. Hi, Michael, it's Ian Lee here. Hope you're doing well. Yes, we're very pleased so far with the integration of Aarki. As we've noted that in the letter, you know, CPI improvement we saw in the quarter didn't yet include you know, any benefits yet from the synergies from Aarki. We're continuing to integrate Aarki and have noted again that process is gonna take you know, several more quarters from here. Again, we're very excited about that as we head into next year. In the other two points you noted there on the UA spend, this was more of a Q3 thing I'll talk about going forward. We did see some improvements there in the CPI and allowing us to you know, be more aggressive with user acquisition investment in Q3.
Some of those reasons were, again, some of the needed buying tools which we're able to scale, several new ad networks, which enabled us to increase our bidding precision. There were also some traffic initiatives that we were able to use, such as search engine and app store optimization, which allowed us to grow our organic traffic. Going forward into Q4 next year, we look forward to continuing to be aggressive but also disciplined. On the engagement marketing side, well, just a little recap before we talk about next year. We, you know, introduced a number of different testing and experiments on engagement marketing initiatives to drive end user engagement and monetization in Q2, continue that in Q3, and expect to continue doing that into Q4.
Specifically to your question about 2022, we noted in the letter, particularly around engagement marketing, that, you know, we've done a lot of these testing experiments over the last several quarters. We'll be looking to leverage the learnings from all those, as we go into next year, and really focus on the investment on programs which we believe over time will better, most effectively increase the engagement of users and sort of monetization. Again, as we noted in the letter, it's still too early to predict specific changes around engagement marketing, but it is possible that, some of those changes may lead to a reduction in certain engagement marketing initiatives relative to revenue in 2022.
All right. That's helpful. Thanks a lot, Ian.
Thank you, Mr. Graham. The next question is from Clark Lampen with BTIG. Please proceed.
Thanks a lot. Good evening. I'll make this easy, and I'll follow up on Mike's question, maybe on the DSP side, with Aarki. Now that you guys have had that under the umbrella for a little while, I'm curious how you're thinking about the ad opportunity. Is that something, you know, particularly as we've seen the MAU base increasing this quarter, you know, how do you think about that sort of an integration? How difficult is it? Is that something that we could think about maybe starting to contribute next year?
Andrew, would you like to take that one?
Yeah, I'd love to take that. Generally, I think we've been messaging that the Aarki integration will take somewhere between four and eight quarters, and I think that still should be the expectation. The integration is on track. We're really excited about the synergies between the two businesses in terms of user acquisition, data science, as well as developer relations.
If I could, maybe just with a quick follow-up sort of on the guidance, you guys talked about $200 million or so in UA investment for the year. Is that still the right target, as we think about you guys tapering spend?
Hey, Clark, it's Ian Lee again. We haven't given a specific target for the overrun rate for the full year of 2021. Again, we will look in Q4 to be aggressive but also disciplined. We haven't given a specific target for the full UA budget for 2021.
Got it. Thanks, guys.
Thank you, Mr. Lampen. Again, ladies and gentlemen, to ask a question, press star one. Again, to ask a question, press star one. The next question is from Brad Erickson with RBC Capital Markets. Please proceed.
Thanks, guys. It's Dan Parr on for Brad Erickson. Was hoping you might be able to provide the user incentive contra revenue and the user incentive spend in sales and marketing for this quarter as well as the third quarter of 2020. I have two questions on Big Buck Hunter after.
Sure. Hi, it's Ian Lee here. The reduction in revenue amount for Q3 was just under $19 million for Q3. If you're looking at the engagement marketing, that was in sales and marketing, that number Q3 of last year is about just-
Got it. Thanks. On Big Buck Hunter, have you guys seen any cannibalization of engagement with the launch for other properties on the platform? Has there been any shift in developer concentration mix with the launch? Thanks.
Take that one?
Hi, Sam. Thank you for the question. I think as you've probably seen, performance on Big Buck Hunter was strong out of the gate. The game quickly became a top game in the sports category. The demographics between genres tend to be substantially different. We view the launch of new games and new experiences as accretive to the business rather than cannibalistic in other gaming mixes.
All right. Got it. Thanks.
From a revenue concentration perspective, I think we've shared this, but we always expect to see a degree of concentration in our business as consumers move towards the best competitive experiences. We always expect to see concentration in our top titles. We have seen a small decrease in the concentration among the top two developers on the system, though, as more experiences have come online.
Thanks.
Thank you.
Thank you, Mr. Erickson. We have a follow-up question from Clark Lampen with BTIG. Please proceed.
Thanks for letting me back in. I just wanted to follow up on the genre commentary in the release. You guys talked about racers, FPS, and fighting. Genre coverage and expansion. Was there a reason that you guys decided to, you know, sort of pursue those as the first ones? Was there maybe sort of pent up-
I'll pass it to Andrew.
Yeah. Look, we've only really scratched the surface of the market opportunity ahead of Skillz. The most popular content on the platform today, it falls into the card and board categories of gaming. Candidly, even in casual asynchronous games to build on the platform. Think about trivia, about arcade games. Many types of classic arcade games that haven't yet even pioneered onto the platform. We made a lot of progress this last quarter. We announced an agreement with Trivia Crack in the trivia category. I think the reason we keep highlighting that particular deal is Trivia Crack is the number one trivia game in the world. It has about 40 million pretty wide geographic availability as well. You know, it's a truly
It is the first-person shooter game on the platform. But the primary game mode today is asynchronous shooting. It's not a synchronous first-person shooter like what you might see in Counter-Strike. I think where we're really excited about in the midterm ahead of the rollout of 5G is leveraging our partnership with Exit Games to accelerate the expansion of the platform beyond casual asynchronous into mid-core and core genres. We think genres that are possible today with the level of fidelity that users expect on the Skillz platform when they're playing for real prizes.
Understood. Thanks for the color.
Thank you.
Thank you, Mr. Lampen. The next question is from Brian Fitzgerald with Wells Fargo. Please proceed.
Thanks, guys. Had problems queuing up there. By the way, I don't know if that was an issue, but I ended up dialing back in and it and the queue worked. Glad to be in.
Thanks, Brian.
From a tools perspective, AppLovin bought Machine Zone, and Zynga bought Chartboost, and you bought Aarki. How do you think about the need to own other critical parts of the value chain tool sets, game engines, DSPs, distribution channels? Are there other pieces you would like to have inside your toolkit?
I'll pass it to Andrew.
I think we're being very thoughtful in terms of our inorganic growth as well as our acquisition across the value chain. Buying a DSP was a very logical thing for Skillz, particularly our relationship with so many DSPs in terms of our user acquisition budget. As we're thinking ahead and looking at the next inorganic opportunities, there are definitely multiple pieces of the value chain that we're evaluating, but we aren't sharing anything publicly at this time.
Got it. Appreciate it.
Thank you, Mr. Fitzgerald. Again, ladies and gentlemen, to ask a question, press star one. Again, to ask a question, press star. The next question is from MacAllistre Henry with Contentful. Please proceed.
Hi, there. On September 20th, the company put out a press release regarding a multi-year performance document, the company achieving certain milestones about the stock price. The press release noted that vesting was based entirely on achievement of performance objectives rather than his continued service. Under the terms, Mr. Paradise must remain in service as either CEO or Executive Chairman and Chief Product Officer at Skillz. Shed any light on this. Could you clarify, is this based on Mr. Paradise's continued service? Or will he receive these shares if Skillz stock achieves those milestones, even if he's not associated with the company in the future?
It is the, you know, ongoing service with the company in the public documentation. Operator, can we move to the next question if there is any, please?
There are no additional questions at this time. I will now pass it back to Andrew for closing remarks.
Well, thank you all for, again, for taking the time to join us today. We're very excited to continue to build the company forward, and we look forward to providing an update on our continued progress when we report our fourth quarter and full-year results in early 2022. Till then, game on.
Great. Thanks, everybody.
That concludes the 2021 earnings conference call. Enjoy the rest of your day.