Nazara Technologies Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Kiddopia returns to subscriber growth: Subscribers grew 3.7% QoQ after a long flat stretch, while back-to-back price hikes lifted ARPU and churn fell, signaling the product turnaround is taking hold.
• Nodwin is scaling fast but margin-blind: Revenue grew 53% YoY in Q3, yet management refused to guide on when margins will recover, calling the spend "medium to long-term investments."
• WildWorks is a fixer-upper with pricing upside: The Animal Jam studio contributed ₹29.8 crore in 9M revenue but is still being rebuilt from the data layer up; management sees untouched pricing as a "low-hanging" lever.
• Adtech and Sportskeeda are investing through growth: Datawrkz added 31 new clients and grew 55% YoY, while Sportskeeda's time spent nearly doubled, but both saw margins compress as they funded new teams and introductory pricing.
• What to watch next quarter: Whether Kiddopia's subscriber growth sustains for a second quarter, any stabilization in Nodwin's business mix, and if WildWorks can finally show "accurate data and positive momentum."

Kiddopia Turnaround

• Subscriber base inflected: After many quarters of flat or declining trends, subscribers grew 3.7% QoQ, driven by declining cost per trial, increasing ARPUs, and reducing churn, alongside product improvements made over the last year.
• Price hikes compounding without pushback: A price hike taken in the previous quarter and another on December 1 totaled approximately a 30% increase; no material negative impact was observed on core KPIs, and churn actually declined from 6.5% to 5.9%.
• ARPU rising gradually by design: Price hikes impact only new users, not existing subscribers, so ARPU has moved slowly from $6.3 in Q3 FY21 to $6.8 in Q3 FY23; back-to-back increases are expected to show a faster ARPU rise in the coming year as the mix of new versus old users shifts.
• User acquisition efficiency improving: CAC declined from $39.3 in Q1 FY23 to $37.3 in Q3 FY23 even as marketing spend was deliberately increased from $2.7M to $3.4M, indicating efficient spend.
• Spend discipline holding: The team is guided not to spike spend aggressively but to keep acquiring quality users at the right price; management will try to continue increasing marketing spend as long as those guardrails hold.

Mittersain: "We are quite satisfied with the way things are playing out for Kiddopia and are very hopeful that this growth will pick up pace in the coming quarters."

Nodwin: Growth Without Margin Visibility

• Revenue momentum is strong: Revenue grew 53% YoY in Q3 FY23 and 98% in 9M FY23, led by offline events like DreamHack and NH7 Weekender and the creation of new international IPs.
• Margins suppressed by deliberate investment: EBITDA margins were lower due to significant spending on creating new IPs, negligible margin contribution from the gaming accessories business, costs from new game introductions after earlier bans, and senior team hires; physical events returning after a long gap also need a few quarters to regain efficiencies.
• Business mix is too fluid to disaggregate: Management said the mix is changing very rapidly quarter-on-quarter due to multiple new businesses and business lines being introduced, and they want to see it stabilize before carving out and sharing individual line items.
• Seasonality will normalize over time: H2 will always be larger than H1 for events because Q3 and Q4 have better weather, though the game accessories business, which peaks in Q2, will normalize seasonality to a certain extent.
• No margin guidance offered: When asked when margins might return to historical levels of 6% to 7%, management declined to give any guidance, stating they have no immediate visibility.

Mittersain: "I don't have immediate visibility on when margins on Nodwin are going to really come back to where they were. So I would not like to give any guidance."

WildWorks: Rebuilding the Foundation

• Topline contribution is solid but underlying metrics are unreliable: WildWorks contributed ₹29.8 crore in revenue with EBITDA of ~₹1.9 crore in 9M FY23, but management disclosed that a lot of the data captured earlier was not accurate and significant fixing is still in progress on data hygiene, product roadmap, and pricing strategy.
• Pricing lever is untouched: Management sees a low-hanging opportunity in pricing because WildWorks has not increased prices for two to three years; multiple approaches are being evaluated as work in progress.
• User acquisition handed to Datawrkz: Animal Jam's user acquisition has been completely handed over to the internal Datawrkz team, which is now starting to work actively on it.
• Stabilization before scaling: Management wants one or two quarters to stabilize the business and ensure a complete grip on all levers before scaling; they are hopeful that by next quarter they can show more accurate data and positive momentum, and that FY24 will see strong performance.
• Kiddopia-style disclosure promised: Once things are stable, management intends to present almost exactly the same KPIs and unit metrics as provided for Kiddopia, given both businesses are very similar.

Mittersain: "The more we work on this product the more we see low-hanging opportunities for ourselves. So we remain convinced that this was a great IP to buy, and there's a lot that we'll be able to do here."

Adtech and Sportskeeda: Investing Through Growth

• Datawrkz scaling with new clients: Revenue increased 55% YoY to ₹118.2 crore in 9M FY23; 31 new clients were added, contributing 31% of total revenue.
• Adtech margins compressed by onboarding, not pricing pressure: Margins came off because introductory pricing is offered to new customers until they reach a certain scale; management indicated 8% to 10% is the range to keep in mind for this business at this point of time and will focus on optimizing margins in the coming year.
• Adtech seasonality is pronounced: Q3 builds up due to Christmas spending in the US, while Q4 will see spend drop off, but overall good year-on-year growth is expected to continue.
• Sportskeeda engagement deepening: Revenue grew 59% in 9M FY23 driven by strong US market growth, scaling of video, and strengthening of core American sports coverage; MAU grew 28% in December 2022 versus December 21 and time spent increased from 2 minutes 48 seconds in Q3 FY22 to 5 minutes 3 seconds in Q3 FY23.
• Leadership change brings investment: Porush stepped out and Ajay stepped up as CEO this quarter, bringing new ideas and directions that also involve some investment, which has slightly compressed margins on a YoY basis.

Freemium, RMG, and Telco: Mixed Portfolio Dynamics

• Freemium gaming is profitable and stable: Revenue grew 38% in 9M FY23 driven by 48% growth in ad revenues and 14% growth in IAP revenues; EBITDA margin increased to 29.9% as operating expenses remained constant, and DAUs and MAUs have been fairly stable.
• Freemium scaling ambition: Management is keen to increase marketing spend and scale up the user base in the coming months, with many new updates planned; a Datawrkz focus team has been set up to help scale through advertising experiments.
• OpenPlay is retooling before scaling: Revenue grew 28% in 9M FY23 while the business worked on product optimization; MAU declined from ~27,000 to ~23,000 as the focus shifted to deep-diving valuable customers, enhancing ARPUs, and setting systems and funnels right.
• Google Play launch shows early promise: OpenPlay launched its app on Google Play with early signs of better-quality customers and higher ARPUs, though KYC friction is still being addressed; management hopes to scale the opportunity by next quarter.
• Telco segment shrinking but profitable: Revenue declined 16% in 9M FY23 but EBITDA grew 2% due to continued cost optimization.
• Regulatory focus is on skill-based RMG, not eSports or freemium: Management expects final guidelines will address industry concerns and believes eSports and freemium gaming are not the focus of current regulatory activity, which is centered on skill-based RMG where money-in, money-out is involved.

Mittersain: "I think a lot of the regulation right now is focused on where money in, money out is involved. And it specially focuses in that activity or the regulatory activity on the skill based RMG side."

Guidance & Commitments

Key Metrics