Nazara Technologies Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Growth accelerated, guidance raised: Revenue grew 104% YoY in Q2, and full-year FY23 revenue guidance was revised upward to 70%–75% from the earlier 50%, reflecting management’s decision to press the accelerator on multiple growth opportunities.
• Strategic margin reset accepted: Management consciously prioritized market leadership and scale over higher margins, lowering the full-year EBITDA margin floor to a minimum of 10% while committing to stay profitable and cash-flow positive.
• NODWIN’s top-line surge masks investment phase: eSports revenue jumped 240% YoY, but EBITDA margin compressed to 0.8% in H1 as the company invested in building new IPs and scaling a gaming accessories business to a leadership position on Flipkart.
• Kiddopia user acquisition engine repaired: Cost per trial declined to \$37.9 even as marketing spend scaled to \$3.1 million, signaling that the post-IDFA channel mix optimization is working and the app is ready to re-accelerate subscriber growth.
• What to watch next quarter: Whether Kiddopia’s subscriber base stabilizes and begins to grow again, the pace of NODWIN’s margin recovery in its seasonally larger second half, and any early traction from the Classic Rummy app’s new listing on Google Play.

Growth Strategy & Margin Philosophy

• Accelerator pressed: After seeing a larger-than-expected opportunity set across segments, management made a deliberate choice to invest for market leadership and scale rather than optimize for the earlier 12%–13% margin target, which was tied to a now-superseded 50% revenue growth guide.
• Guardrails defined: The company will not pursue growth by burning money or incurring losses; the commitment is to maintain positive margins and positive cash flow while capturing the expanded opportunity.
• H2 growth optics: Q2’s 104% growth benefited from a smaller base in the prior year, while Q3 and Q4 face much larger comparators; additionally, the gaming accessories business peaks in Q2 due to festive-season sales on Flipkart and Amazon, so the reported growth rate will naturally decelerate.

Nitish Mittersain: "We took a strategic call that we want to press that accelerate and versus optimize or achieve higher margins because we have this unique opportunity to really build for market leadership and for scale."

eSports & NODWIN

• Revenue explosion: NODWIN revenue grew 240% in Q2, driven by media revenues from the Master Series and Playground IPs, plus strong growth in the gaming accessories business.
• Margin investment: EBITDA fell to 0.8% in H1 from 4.8% a year ago because of the cost of building new IPs like Playground and scaling the accessories business, which achieved a leadership position in the gaming headphone category on Flipkart.
• Seasonal margin recovery expected: Q3 and Q4 are much larger quarters for NODWIN with higher margins, and operating leverage is expected to kick in as the media and accessories businesses scale.
• BGMI ban response: Three levers are in play: gamers shifting to Call of Duty Mobile or PUBG New State; South Asia PUBG Championships potentially relocating teams to Dubai while broadcasting and viewership continue from India; and creating on-demand content IPs like Playground that are not dependent on live tournament content.
• Revenue split withheld: Management declined to break NODWIN revenue into OML and D2C components, stating the splits are still too small and it does not want to disclose more data until the levers are “tangible, printable, scalable.”

Nitish Mittersain: "The only guardrail we have put is we do not want to achieve the same by going into losses. So you will never see large losses being incurred to achieve market leadership but trying to maximize margins or increase margins at this time at the cost of growth may also not be a very good idea."

Kiddopia & Gamified Learning

• User acquisition efficiency restored: Marketing spend increased to \$3.1 million while cost per trial declined from \$39.3 to \$37.9, demonstrating that the company can now scale spend without inflating trial cost after optimizing its channel mix post-IDFA.
• Subscriber outlook: At the current spend level, the user base is expected to be stable with any further decline stemmed; management expects to start showing growth in coming quarters.
• ARPU tailwind: ARPU of \$6.8 is increasing and expected to continue rising as more users come in at new, higher price points.
• WildWorks early integration: Since the \$10.4 million acquisition less than two months prior, key hires have been made, customer-service budgets increased, turnaround times reduced, and product updates accelerated; an uptick is already being seen, and the business should benefit from the US Christmas season.

Nitish Mittersain: "Our spend has dropped after the Apple-IDFA issue and if you will see the cost per trial has actually declined from \$39.3 to \$37.9. What that really shows is now we are able to scale back spend not at the cost of increasing our trial cost, but actually..."

Real-Money Gaming & Google Play

• Google Play listing: The Classic Rummy app went live on Google Play about a week to 10 days before the call, following Google’s decision to allow fantasy sports and rummy apps on its store.
• Expected benefits: Eliminating the friction of downloading an APK from outside Google Play should significantly improve the funnel, leading to a lower cost per trial for paid and depositing users.
• Cautious scaling stance: Management is excited about leveraging OpenPlay’s tech platform and the Google Play opening but notes the space has strong network effects and large incumbents; how much accrues to Nazara will only be known in coming quarters. The company also wants clarity on GST before scaling this business meaningfully.

Adtech & Sportskeeda

• Sportskeeda US surge: US revenues grew 2.6x in Q2, driven by an increase in video revenues and a strengthening offering in eSports as well as core American sports including football, basketball, tennis, and baseball.
• Datawrkz growth profile: The adtech business grew 50%–54% in H1, slower than its pre-acquisition >100% pace; Q3 and Q4 are seasonally larger due to US festive advertising spends, and the company has been more aggressive in acquiring new clients since the acquisition.
• Macro resilience argument: As a \$15–\$20 million business in a \$700 billion advertising industry, macro-level ad cuts are not expected to affect Datawrkz materially; its India-based operations provide a cost-arbitrage benefit for clients cutting spend.

Nitish Mittersain: "In a very, very large industry of US of \$700 billion advertising industry, Datawrkz just a \$15-\$20 million business. So I don't think macro levels will affect data works a lot today. And also as advertisers cut spend, I think Datawrkz with its operations out in India provides a significant arbitrage and cost benefit for many clients."

Leadership & Organization

• CEO transition: Nitish Mittersain will take over as CEO effective 1 December 2022; Manish Agarwal is stepping down to build in the blockchain gaming space but will remain on the board of leader subsidiaries and continue as an adviser to Nazara.
• New COO: Sudhir Kamath joined as Chief Operating Officer with 20 years of experience in strategy consulting, private equity investing, and running companies; his responsibilities include developing and executing strategy, working with subsidiaries, and M&A.
• M&A continuity: Mittersain will take the lead on M&A from a structuring, valuation, and network perspective going forward; the freemium M&A pipeline is described as healthy but with nothing concrete to announce, as decisions involve deep engagement with teams and are not made in haste.

Manish Agarwal: "I'm very-very excited always in building nascent areas much earlier ahead and I think blockchain is some of that area, which over the next 7 to 8 years, will evolve and there are a lot of teething issues on basic blockers or ecosystem friction and I'm very excited always to build those blockers and look at those ecosystem play."

Guidance & Commitments

Key Metrics