Correspondence 0001801661-22-000017 from Skillz Inc. (SKLZ) (CIK 0001801661) (SKLZ)
Skillz Inc. (SKLZ) (CIK 0001801661)
Date: Dec. 23, 2022 · CIK: 0001801661 · Accession: 0001801661-22-000017
AI Filing Summary & Sentiment
File numbers found in text: 001-39243
Referenced dates: November 21, 2022
Letter
Division of Corporate Finance Office of Technology United States Securities and Exchange Commission Kathleen Collins, Accounting Branch Chief RE: Skillz Inc. Form 10-K for the Year Ended December 31, 2021 filed March 1, 2022 Form 10-Q for the Quarterly Period Ended September 30, 2022 filed November 7, 2022 File No. 001-39243
Dear Mses. Sweeney and Collins,
Set forth below are the responses of Skillz Inc. (the “Company” or “we”) to the comments of the staff of the U.S. Securities and Exchange Commission’s Division of Corporation Finance of the Commission (the “Staff”) set forth in the Staff’s letter to the Company dated November 21, 2022 (the “Comment Letter”).
For ease of reference, each comment contained in the Comment Letter is printed below and is followed by the Company’s response.
Form 10-Q for the Quarterly Period Ended September 30, 2022
Management's Discussion and Analysis of Financial Condition and Results of Operations Overview, page 29
1.You state in your response to prior comment 6 that you define mature cohorts as monthly cohorts over three months old. In light of the significant portion of paying monthly active users that have been on the platform for less than three months, please tell us the average lifetime of a monthly cohort and how you monitor this in relation to user acquisition (UA) marketing spend, including the estimated payback period as of December 31, 2021 and September 30, 2022. In this regard, in your Form 10-K you disclose that each user cohort contributes predictably to revenue over its life and on page 30 of this Form 10-Q you refer to having shorter payback periods by the end of 2024. Additionally, tell us the number of PMAU that would be characterized as mature cohorts at September 30, 2022.
Response:
We define mature cohorts as those that are over 3 months old. At 3 months, the majority of the PMAUs have churned such that approximately 20% of the users in the cohort continue to be paying users. However, our
retention curve flattens such that at 24 months, an average of approximately 5% of users in the cohort are still paying and at 60 months, our cohorts on average still have active paying users contributing to revenue.
We forecast user cohort payback periods at the time of acquisition using historical actuals as the basis for our forecast. We measure actual cohort performance against our forecast on a monthly basis. As of December 31, 2021, we estimated the payback period for our Q4 2021 cohort to be approximately 50 months. As of September 30, 2022, we estimated the payback period for our Q3 2022 cohort to be approximately 19 months. The decrease in projected payback periods from Q4 2021 to Q3 2022 was related primarily to both decreased user acquisition costs and product changes resulting in increased revenue per PMAU, which we project will increase cohort lifetime value.
As of September 30, 2022, there were 204,161 PMAUs in mature cohorts on the Skillz platform.
2.We note your revised disclosures in response to prior comment 3 where you state that the company is currently unable to estimate the “precise degree” to which expected reductions to UA marketing and engagement marketing will impact revenue. Considering the significantly lower quantitative revenue guidance for Fiscal 2022 provided in your 2022 earnings releases, it appears that you expect a material reduction in revenue attributable to reductions in UA marketing and engagement marketing spend, as well as other factors. Please tell us whether you are able to estimate a potential range of impact that such reductions and other factors will have on revenue and if so, revise to provide such quantitative estimate or range. Additionally, if you do not believe you can reasonably estimate the quantitative impact, or range of impact, on revenue, please revise to qualitatively disclose the extent to which you expect these factors to negatively impact revenue in Fiscal 2022 and potentially beyond the current fiscal year. Finally, revise to clarify the extent to which the revised financial outlook in the third quarter, including projected UA spend and slower migration of that spend to Aarki, compares to your previous financial outlook. Please provide us with proposed revised disclosures based on September 30, 2022 results.
Response:
We respectively advise the Staff that we cannot reasonably estimate the quantitative impact, or range of impact, that reductions in user acquisition marketing and engagement marketing will have on forward-looking revenue as a result of the number of interrelated factors impacting revenue, such as the retention of existing users on the platform, average monthly revenue per paying user, efficacy of various engagement marketing programs on existing users, elasticity of the digital advertising supply curve, and impact of varying levels of player liquidity on the existing
user ecosystem. We do, however, believe that the reductions in user acquisition marketing and engagement marketing substantially reduced our projected fiscal 2022 revenue. Furthermore, we believe that our reduction in user acquisition marketing will meaningfully reduce our fiscal 2023 revenue, albeit with a smaller impact in fiscal 2023 versus fiscal 2022.
In consideration of the Staff’s comment, please see proposed revised disclosures to our August 4, 2022 earnings release related to our revised financial outlook (added disclosure is denoted by underline):
We are lowering our full-year 2022 revenue guidance from $400 million to $275 million. Our revised guidance is based on engagement marketing as a percentage of revenue of approximately 42%. The Company has reduced its expected UA marketing spend in 2022 from approximately $190 million to between approximately $125-135 million. This reduction also reflects slower than expected migration of that spend to the Aarki technology-driven marketing platform resulting in unrealized cost-saving synergies. The Company expects that the reductions in UA marketing and engagement marketing will substantially reduce the Company’s 2022 revenue.
Further, in consideration of the Staff’s comment, please see our revised MD&A disclosures based on September 30, 2022 results (added disclosure is denoted by underline):
Engagement marketing is a sales and marketing expense representing rewards and awards that developers do not have a valid expectation of being offered to end-users to engage on the platform. Decreases in engagement marketing could result in lower revenue as paying users no longer receive those end-user incentives, which include Bonus Cash which can only be used to enter into paid contests. User acquisition (“UA”) marketing is a sales and marketing expense to acquire new paying users to the platform. Assuming acquisition cost per user is constant, decreases in UA marketing typically result in lower revenue as a result of having fewer new paying users. The Company reduced its expected UA marketing spend in 2022 to between approximately $118-124 million from approximately $242 million in 2021. The reduction in UA marketing and engagement marketing expenses has resulted in a substantial reduction in revenue and is expected to continue to result in a reduction in revenue. The Company is currently unable to reasonably estimate the quantitative impact, or range of impact, that reductions in UA marketing and engagement marketing will have on forward-looking revenue as a result of the number of interrelated factors impacting revenue, including, but not limited to, retention of existing users on the platform, average monthly
revenue per paying user, efficacy of various engagement marketing programs on existing users, elasticity of the digital advertising supply curve, and impact of varying levels of player liquidity on the existing user ecosystem. Over the course of 2022, our plan has been to focus on driving higher efficiency from our marketing investment by (1) reducing spend on low-return engagement marketing programs, which we expect will result in lowering engagement marketing as a percentage of revenue and (2) driving UA efficiency by optimizing spend across networks, driving higher organic traffic, and migrating a greater proportion of UA marketing spend to Aarki, Inc. (“Aarki”), which we expect, over the long term, will result in reducing the total UA spending in 2022 and 2023 relative to 2021, and to significantly reduce the average costs to acquire a new paying user (“user acquisition costs” or “UAC”) with shorter payback periods by the end of 2024. The Company still expects to continue the migration to Aarki over time and realize synergies from the acquisition, albeit over a longer period of time compared to that originally forecasted. To the extent we reduce engagement marketing spend, we expect to reduce our Bonus Cash end-user incentives in proportion to such overall engagement marketing reduction.
On July 16, 2021, the Company completed the acquisition of Aarki and acquired 100% of the outstanding equity and voting interest of Aarki under the terms of the Agreement and Plan of Merger. The Company paid $162.3 million in consideration comprised of $95.3 million in cash and the remaining $67.1 million comprised of 4.4 million shares of Skillz Class A common stock to the existing Aarki stockholders. The Company expects Aarki’s technology-driven marketing platform to result in significant efficiencies in user-acquisition costs over the long term, which can be reinvested to acquire more users to accelerate growth and provide a broader product offering, including media buying capabilities to better serve game developers. The financial results of Aarki have been included in the Company’s condensed consolidated financial statements since the date of the acquisition. As previously disclosed, we recorded certain goodwill and intangible assets in connection with our acquisition of Aarki. The Company’s policy is to evaluate goodwill and intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In the third quarter of 2022, the Company revised its financial outlook, reflecting lower projected UA marketing spend, in addition to a slower than expected migration of that spend to the Aarki technology-driven marketing platform, resulting in unrealized cost-saving synergies. The Company determined that this constituted a triggering event for one of the Company’s held and used long-lived asset groups, primarily consisting of developed technology and customer relationship intangible assets. As a result of our impairment evaluation, we recorded a non-cash intangible
asset impairment charge of $47.6 million in the condensed consolidated statement of operations and comprehensive loss. See Note 5, Goodwill and Intangible Assets, for further details.
Our Financial Model, page 31
3.We note from your response to prior comment 1. Your disclosure that Gross Marketplace Volume (GMV) represents entry fees that may be paid using cash deposits, prior winnings that have not been withdrawn, and end-user incentives continues to imply that Bonus Cash is not included within prior winnings. We note similar disclosure regarding paid entries on page 32. Please revise your disclosures regarding the components of GMV and paid entries to clarify the composition of prior winnings. Specifically disclose that they include Bonus Cash returned from prior winnings and remove references to “withdrawn” as Bonus Cash cannot be withdrawn. Disclose the nature of end-user incentives that you separately disclose as a component of GMV and paid entries and clarify whether these are only newly offered incentives and whether this includes both end-user incentives recorded as a reduction of revenue and incentives recorded as sales and marketing expense. Please provide us with a reconciliation of the end-user incentives as percentage of GMV in your table of supplemental information to the amount of end-user incentives disclosed in your financial statement footnotes on page 7. Finally, disclose, if true, that you are not able to estimate the amount of Bonus Cash that is included within the prior winnings that you disclose. Please provide us with proposed revised disclosures based on on your September 30, 2022 results.
Response:
We will revise our disclosures to state that the prior winnings component of GMV includes Bonus Cash returned from prior winnings and remove references to “withdrawn”. We will also disclose the nature of end-user incentives as a component of GMV and paid entry fees, and reference that we are unable to estimate the amount of Bonus Cash returned from prior winnings used to pay entry fees. We have included a revised disclosure reflecting these changes below.
Please see below the reconciliation of end-user incentives as a percentage of GMV in our table of supplemental information to the amount of end-user incentives disclosed in our financial statement footnote on page 7 (in thousands, except percentages):
Three Months Ended
March 31, 2022 June 30, 2022 September 30, 2022
GMV1 [A]
$ 552,134 $ 432,209 $ 360,364
% of GMV from End-User Incentives2 [B]
8 % 7 % 7 %
GMV from End-User Incentives [C]=[A] x [B] $ 42,601 $ 31,407 $ 25,107
Bonus Cash in Contra Revenue3 [D]
$ 16,306 $ 13,081 $ 10,794
Bonus Cash in Engagement Marketing [E] $ 26,295 $ 18,326 $ 14,313
Total Bonus Cash [C]=[D] + [E] $ 42,601 $ 31,407 $ 25,107
Bonus Cash in Engagement Marketing [E] $ 26,295 $ 18,326 $ 14,313
Other Engagement Marketing4 [F]
$ 10,674 $ 8,168 $ 7,622
Total Engagement Marketing, End-User Incentives5
[G]=[E] + [F]
$ 36,969 $ 26,494 $ 21,935
(1) As previously disclosed in our Form 10-Q for the respective fiscal periods in Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview.
(2) As previously disclosed in our Form 10-Q for the respective fiscal periods in Management’s Discussion and Analysis of Financial Condition and Results of Operations: Our Financial Model.
(3) As previously disclosed in our Form 10-Q for the respective fiscal periods in Footnote 2, Summary of Significant Accounting Policies: End-User Incentive Programs - Marketing promotions and discounts accounted for as a reduction of revenue. Amounts include end-user incentives recognized as a reduction of revenue, including Ticketz redeemed for Bonus Cash and initial deposit Bonus Cash.
(4) Other engagement marketing includes leagues and other end-user incentives, which are not considered a component of GMV and included as end-user incentives recognized in sales and marketing expenses
(5) As previously disclosed in our Form 10-Q for the respective fiscal periods in Footnote 2, Summary of Significant Accounting Policies: End-User Incentive Programs - Marketing promotions accounted for as sales and marketing expense.
In consideration of the Staff’s comment, please see the following proposed MD&A (Financial Model) disclosures based on our September 30, 2022 results (added disclosure denoted by underline):
Our Financial Model
Skillz’s financial model aligns the interests of gamers and developers, driving value for our stockholders. By monetizing through competition, our system eliminates friction that exists in traditional monetization models between the developer and the gamer. The more gamers enjoy our platform, the longer they play, creating more value for Skillz and our developers. By generating higher player to payor conversion, retention and engagement, we are able to monetize users at higher than what our developers would generate through advertisem
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Document
December 23, 2022
Division of Corporate Finance
Office of Technology
United States Securities and Exchange Commission
Washington, DC 20549
Attn: Joyce Sweeney, Senior Staff Accountant
Kathleen Collins, Accounting Branch Chief
RE: Skillz Inc. Form 10-K for the Year Ended December 31, 2021 filed March 1, 2022
Form 10-Q for the Quarterly Period Ended September 30, 2022 filed November 7, 2022
File No. 001-39243
Dear Mses. Sweeney and Collins,
Set forth below are the responses of Skillz Inc. (the “Company” or “we”) to the comments of the staff of the U.S. Securities and Exchange Commission’s Division of Corporation Finance of the Commission (the “Staff”) set forth in the Staff’s letter to the Company dated November 21, 2022 (the “Comment Letter”).
For ease of reference, each comment contained in the Comment Letter is printed below and is followed by the Company’s response.
Form 10-Q for the Quarterly Period Ended September 30, 2022
Management's Discussion and Analysis of Financial Condition and Results of Operations Overview, page 29
1.You state in your response to prior comment 6 that you define mature cohorts as monthly cohorts over three months old. In light of the significant portion of paying monthly active users that have been on the platform for less than three months, please tell us the average lifetime of a monthly cohort and how you monitor this in relation to user acquisition (UA) marketing spend, including the estimated payback period as of December 31, 2021 and September 30, 2022. In this regard, in your Form 10-K you disclose that each user cohort contributes predictably to revenue over its life and on page 30 of this Form 10-Q you refer to having shorter payback periods by the end of 2024. Additionally, tell us the number of PMAU that would be characterized as mature cohorts at September 30, 2022.
Response:
We define mature cohorts as those that are over 3 months old. At 3 months, the majority of the PMAUs have churned such that approximately 20% of the users in the cohort continue to be paying users. However, our
retention curve flattens such that at 24 months, an average of approximately 5% of users in the cohort are still paying and at 60 months, our cohorts on average still have active paying users contributing to revenue.
We forecast user cohort payback periods at the time of acquisition using historical actuals as the basis for our forecast. We measure actual cohort performance against our forecast on a monthly basis. As of December 31, 2021, we estimated the payback period for our Q4 2021 cohort to be approximately 50 months. As of September 30, 2022, we estimated the payback period for our Q3 2022 cohort to be approximately 19 months. The decrease in projected payback periods from Q4 2021 to Q3 2022 was related primarily to both decreased user acquisition costs and product changes resulting in increased revenue per PMAU, which we project will increase cohort lifetime value.
As of September 30, 2022, there were 204,161 PMAUs in mature cohorts on the Skillz platform.
2.We note your revised disclosures in response to prior comment 3 where you state that the company is currently unable to estimate the “precise degree” to which expected reductions to UA marketing and engagement marketing will impact revenue. Considering the significantly lower quantitative revenue guidance for Fiscal 2022 provided in your 2022 earnings releases, it appears that you expect a material reduction in revenue attributable to reductions in UA marketing and engagement marketing spend, as well as other factors. Please tell us whether you are able to estimate a potential range of impact that such reductions and other factors will have on revenue and if so, revise to provide such quantitative estimate or range. Additionally, if you do not believe you can reasonably estimate the quantitative impact, or range of impact, on revenue, please revise to qualitatively disclose the extent to which you expect these factors to negatively impact revenue in Fiscal 2022 and potentially beyond the current fiscal year. Finally, revise to clarify the extent to which the revised financial outlook in the third quarter, including projected UA spend and slower migration of that spend to Aarki, compares to your previous financial outlook. Please provide us with proposed revised disclosures based on September 30, 2022 results.
Response:
We respectively advise the Staff that we cannot reasonably estimate the quantitative impact, or range of impact, that reductions in user acquisition marketing and engagement marketing will have on forward-looking revenue as a result of the number of interrelated factors impacting revenue, such as the retention of existing users on the platform, average monthly revenue per paying user, efficacy of various engagement marketing programs on existing users, elasticity of the digital advertising supply curve, and impact of varying levels of player liquidity on the existing
user ecosystem. We do, however, believe that the reductions in user acquisition marketing and engagement marketing substantially reduced our projected fiscal 2022 revenue. Furthermore, we believe that our reduction in user acquisition marketing will meaningfully reduce our fiscal 2023 revenue, albeit with a smaller impact in fiscal 2023 versus fiscal 2022.
In consideration of the Staff’s comment, please see proposed revised disclosures to our August 4, 2022 earnings release related to our revised financial outlook (added disclosure is denoted by underline):
We are lowering our full-year 2022 revenue guidance from $400 million to $275 million. Our revised guidance is based on engagement marketing as a percentage of revenue of approximately 42%. The Company has reduced its expected UA marketing spend in 2022 from approximately $190 million to between approximately $125-135 million. This reduction also reflects slower than expected migration of that spend to the Aarki technology-driven marketing platform resulting in unrealized cost-saving synergies. The Company expects that the reductions in UA marketing and engagement marketing will substantially reduce the Company’s 2022 revenue.
Further, in consideration of the Staff’s comment, please see our revised MD&A disclosures based on September 30, 2022 results (added disclosure is denoted by underline):
Engagement marketing is a sales and marketing expense representing rewards and awards that developers do not have a valid expectation of being offered to end-users to engage on the platform. Decreases in engagement marketing could result in lower revenue as paying users no longer receive those end-user incentives, which include Bonus Cash which can only be used to enter into paid contests. User acquisition (“UA”) marketing is a sales and marketing expense to acquire new paying users to the platform. Assuming acquisition cost per user is constant, decreases in UA marketing typically result in lower revenue as a result of having fewer new paying users. The Company reduced its expected UA marketing spend in 2022 to between approximately $118-124 million from approximately $242 million in 2021. The reduction in UA marketing and engagement marketing expenses has resulted in a substantial reduction in revenue and is expected to continue to result in a reduction in revenue. The Company is currently unable to reasonably estimate the quantitative impact, or range of impact, that reductions in UA marketing and engagement marketing will have on forward-looking revenue as a result of the number of interrelated factors impacting revenue, including, but not limited to, retention of existing users on the platform, average monthly
revenue per paying user, efficacy of various engagement marketing programs on existing users, elasticity of the digital advertising supply curve, and impact of varying levels of player liquidity on the existing user ecosystem. Over the course of 2022, our plan has been to focus on driving higher efficiency from our marketing investment by (1) reducing spend on low-return engagement marketing programs, which we expect will result in lowering engagement marketing as a percentage of revenue and (2) driving UA efficiency by optimizing spend across networks, driving higher organic traffic, and migrating a greater proportion of UA marketing spend to Aarki, Inc. (“Aarki”), which we expect, over the long term, will result in reducing the total UA spending in 2022 and 2023 relative to 2021, and to significantly reduce the average costs to acquire a new paying user (“user acquisition costs” or “UAC”) with shorter payback periods by the end of 2024. The Company still expects to continue the migration to Aarki over time and realize synergies from the acquisition, albeit over a longer period of time compared to that originally forecasted. To the extent we reduce engagement marketing spend, we expect to reduce our Bonus Cash end-user incentives in proportion to such overall engagement marketing reduction.
On July 16, 2021, the Company completed the acquisition of Aarki and acquired 100% of the outstanding equity and voting interest of Aarki under the terms of the Agreement and Plan of Merger. The Company paid $162.3 million in consideration comprised of $95.3 million in cash and the remaining $67.1 million comprised of 4.4 million shares of Skillz Class A common stock to the existing Aarki stockholders. The Company expects Aarki’s technology-driven marketing platform to result in significant efficiencies in user-acquisition costs over the long term, which can be reinvested to acquire more users to accelerate growth and provide a broader product offering, including media buying capabilities to better serve game developers. The financial results of Aarki have been included in the Company’s condensed consolidated financial statements since the date of the acquisition. As previously disclosed, we recorded certain goodwill and intangible assets in connection with our acquisition of Aarki. The Company’s policy is to evaluate goodwill and intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In the third quarter of 2022, the Company revised its financial outlook, reflecting lower projected UA marketing spend, in addition to a slower than expected migration of that spend to the Aarki technology-driven marketing platform, resulting in unrealized cost-saving synergies. The Company determined that this constituted a triggering event for one of the Company’s held and used long-lived asset groups, primarily consisting of developed technology and customer relationship intangible assets. As a result of our impairment evaluation, we recorded a non-cash intangible
asset impairment charge of $47.6 million in the condensed consolidated statement of operations and comprehensive loss. See Note 5, Goodwill and Intangible Assets, for further details.
Our Financial Model, page 31
3.We note from your response to prior comment 1. Your disclosure that Gross Marketplace Volume (GMV) represents entry fees that may be paid using cash deposits, prior winnings that have not been withdrawn, and end-user incentives continues to imply that Bonus Cash is not included within prior winnings. We note similar disclosure regarding paid entries on page 32. Please revise your disclosures regarding the components of GMV and paid entries to clarify the composition of prior winnings. Specifically disclose that they include Bonus Cash returned from prior winnings and remove references to “withdrawn” as Bonus Cash cannot be withdrawn. Disclose the nature of end-user incentives that you separately disclose as a component of GMV and paid entries and clarify whether these are only newly offered incentives and whether this includes both end-user incentives recorded as a reduction of revenue and incentives recorded as sales and marketing expense. Please provide us with a reconciliation of the end-user incentives as percentage of GMV in your table of supplemental information to the amount of end-user incentives disclosed in your financial statement footnotes on page 7. Finally, disclose, if true, that you are not able to estimate the amount of Bonus Cash that is included within the prior winnings that you disclose. Please provide us with proposed revised disclosures based on on your September 30, 2022 results.
Response:
We will revise our disclosures to state that the prior winnings component of GMV includes Bonus Cash returned from prior winnings and remove references to “withdrawn”. We will also disclose the nature of end-user incentives as a component of GMV and paid entry fees, and reference that we are unable to estimate the amount of Bonus Cash returned from prior winnings used to pay entry fees. We have included a revised disclosure reflecting these changes below.
Please see below the reconciliation of end-user incentives as a percentage of GMV in our table of supplemental information to the amount of end-user incentives disclosed in our financial statement footnote on page 7 (in thousands, except percentages):
Three Months Ended
March 31, 2022 June 30, 2022 September 30, 2022
GMV1 [A]
$ 552,134 $ 432,209 $ 360,364
% of GMV from End-User Incentives2 [B]
8 % 7 % 7 %
GMV from End-User Incentives
[C]=[A] x [B]
$ 42,601 $ 31,407 $ 25,107
Bonus Cash in Contra Revenue3 [D]
$ 16,306 $ 13,081 $ 10,794
Bonus Cash in Engagement Marketing [E] $ 26,295 $ 18,326 $ 14,313
Total Bonus Cash
[C]=[D] + [E]
$ 42,601 $ 31,407 $ 25,107
Bonus Cash in Engagement Marketing [E] $ 26,295 $ 18,326 $ 14,313
Other Engagement Marketing4 [F]
$ 10,674 $ 8,168 $ 7,622
Total Engagement Marketing, End-User Incentives5
[G]=[E] + [F]
$ 36,969 $ 26,494 $ 21,935
(1) As previously disclosed in our Form 10-Q for the respective fiscal periods in Management’s Discussion and Analysis of Financial Condition and Results of Operations: Overview.
(2) As previously disclosed in our Form 10-Q for the respective fiscal periods in Management’s Discussion and Analysis of Financial Condition and Results of Operations: Our Financial Model.
(3) As previously disclosed in our Form 10-Q for the respective fiscal periods in Footnote 2, Summary of Significant Accounting Policies: End-User Incentive Programs - Marketing promotions and discounts accounted for as a reduction of revenue. Amounts include end-user incentives recognized as a reduction of revenue, including Ticketz redeemed for Bonus Cash and initial deposit Bonus Cash.
(4) Other engagement marketing includes leagues and other end-user incentives, which are not considered a component of GMV and included as end-user incentives recognized in sales and marketing expenses
(5) As previously disclosed in our Form 10-Q for the respective fiscal periods in Footnote 2, Summary of Significant Accounting Policies: End-User Incentive Programs - Marketing promotions accounted for as sales and marketing expense.
In consideration of the Staff’s comment, please see the following proposed MD&A (Financial Model) disclosures based on our September 30, 2022 results (added disclosure denoted by underline):
Our Financial Model
Skillz’s financial model aligns the interests of gamers and developers, driving value for our stockholders. By monetizing through competition, our system eliminates friction that exists in traditional monetization models between the developer and the gamer. The more gamers enjoy our platform, the longer they play, creating more value for Skillz and our developers. By generating higher player to payor conversion, retention and engagement, we are able to monetize users at higher than what our developers would generate through advertisem