-$5.02
$22.92
bear -$5.02
base $1.18
bull $22.92
margin of safety $2.90
market price* $11.48
Business condition attached to the margin of safety
The Papaya Gaming judgment is affirmed on appeal, or a binding settlement is signed, on terms that deliver at least roughly $150 million over the following few years, and the 10.25% notes due December 15, 2026 have been repaid or refinanced without a large issue of new shares.
FIRY Inc., known as Skillz until June 2026, runs three businesses for mobile game makers. The Skillz platform hosts cash-prize tournaments inside other developers' games and keeps a share of entry fees. It brought in $78.2 million of revenue in 2025, down from $82.4 million in 2024. RZR, formerly Aarki, is an advertising business that helps app makers acquire users. Its revenue was $26.8 million in 2025, up from $10.9 million, and it has been profitable before stock pay for four straight quarters. Beamable, a smaller developer-tools line, joined in 2026. About three-quarters of revenue comes from customers based in the United States. The central fact is that this business has never produced cash for its owners. We measure owner earnings as operating cash flow with the timing swings in working capital removed, and we deduct stock-based pay and the capital spending needed to maintain the business as real costs. On that basis the company lost money every year we can measure: about $25 million in 2019, $99 million in 2020, $270 million in 2021, $262 million in 2022, $124 million in 2023, $46 million in 2024 and $83 million in 2025. The 2024 figure is flattered by a one-time $46 million settlement payment from rival AviaGames. The 2025 figure includes a $7.5 million AviaGames royalty and a one-time $14 million payment to exit the former headquarters lease. Stripping out those items, interest paid and interest earned on cash, the operating business consumed about $94 million in 2024 and $76 million in 2025, and was running at about $80 million a year in the first half of 2026. That is roughly $60 million of cash plus about $20 million of stock pay. We treat 2024 onward as representative of the business as it stands after the deep cuts of 2022-2023. The burn improved about 19% in 2025, and our central case assumes no faster improvement than that in 2027. Future cash flows are discounted at 6%. Balance sheet. At June 30, 2026 the company held $164 million of cash. It owed $129.7 million of 10.25% senior secured notes due December 15, 2026. Management has announced an $80 million early redemption and says it expects to repay or refinance the remaining $50 million. We set aside about $15 million of cash to cover player balances and amounts owed to publishers. AviaGames still owes $7.5 million of patent royalties in each of 2027 and 2028, worth about $14 million today. After these items, net financial assets come to about $33 million. At the current burn, repaying the notes in full would leave very little cash by the end of 2026. The company will therefore need new borrowing, new shares or litigation proceeds during 2027. The largest value driver is not on the balance sheet. In April 2026 a New York federal jury found that Papaya Gaming had falsely advertised its games as fair while using bots, and awarded $420 million. In July 2026 the court entered a judgment of about $719 million, disgorging Papaya's profits, plus about $10 million of fees and costs, and denied Papaya's post-trial challenges. Papaya, a privately held Israeli company, says it will pursue all options including appeal. The company rightly has not recorded the judgment as an asset because it is neither final nor collected. We value it separately in each case. Recoveries would be largely sheltered from tax by about $665 million of non-expiring federal loss carryforwards, and we deduct 5% for tax. Bear case, about -$5.02 per share. The judgment is overturned or proves uncollectible. The platform keeps burning close to today's rate, about $40 million in the second half of 2026 and $70 million in 2027, until the money runs out, and the remaining notes must be refinanced on expensive terms. The operations are worth about -$105 million and the royalties add $14 million, so the business is worth about -$91 million. Against $149 million of spare cash, it owes $130 million on the notes and about $8 million of extra refinancing cost. That leaves shareholders about $81 million short: the company would owe more than it is worth, and the losses would have to be funded by new investors at heavy dilution to today's owners. Base case, about $1.18 per share. The burn falls as documented cost cuts take hold and as Papaya trial spending ends. Sales and marketing fell from $17.3 million in the first quarter of 2026 to $13.6 million in the second, and litigation expense was $16.2 million in 2025. The burn falls to about $65 million in 2027 and $50 million in each of 2028 and 2029, after which the platform stops consuming cash. RZR then contributes about $1.5 million a year, its 2025 profit level, for ten years. The Papaya judgment survives in substance, but Papaya cannot pay all of it. We assume about $200 million is collected in stages from late 2027 to 2029, structured like the AviaGames settlement with upfront cash plus installments. The operations are worth about -$178 million, the Papaya recovery about $169 million and the royalties $14 million, so the business is worth about $6 million. Adding $149 million of spare cash and subtracting $130 million of notes and about $6 million of expensive refinancing leaves about $19 million for shareholders. Bull case, about $22.92 per share. The judgment is affirmed and about $500 million is collected between late 2027 and 2030. Cost cuts go further, so the burn ends in 2029, and RZR earns about $5 million a year for a decade. The business is worth about $356 million. Adding $149 million of spare cash and subtracting $130 million of notes and $6 million of refinancing cost leaves about $369 million. We give no credit to management's goal of modest positive operating cash flow in 2027, to RZR's expected near-doubling of revenue, to a possible court order restricting Papaya's conduct, or to suits against other rivals such as Voodoo and Tether Studios. None of these has happened yet, and the company's own record does not yet show a business that funds itself. On the other side, in its 2025 10-K the company disclosed a class action filed in January 2026 alleging that Skillz misrepresented its use of bots and the evenness of its matchmaking; these are allegations by the plaintiffs, and the company considers any likely loss immaterial. The company also filed several reports late in 2024-2025. That drew a default notice from noteholders, which was cured once the filings were brought up to date, and the company is still fixing weaknesses in its internal controls. The shares are worth roughly $1 in our central case, with a range from well below zero to over $20. Nearly all of that range comes from two unknowns: how much of the Papaya judgment is collected and how quickly, and whether management can shrink the cash burn before it must raise money. An appeals-court affirmance or a signed settlement would move the value sharply toward the bull case. We estimate about $6.40 per share if a recovery of roughly $300 million became reasonably assured, and the margin-of-safety price of about $2.90 applies only then. A reversal would leave a business that has consumed cash every year since 2019. Some differences in the 2019-2021 cash-flow data, from non-cash items that are not separately itemized, could not be fully traced. They do not affect this valuation, which rests on 2024 through mid-2026.