Nazara Technologies Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Revenue crossed INR1,000 crores, but a ban clouds the near term: FY23 revenue grew 75.5% YoY to INR1,091 crores, yet the April 2023 Tamil Nadu ban on rummy and poker, which contributed 20% of FY23 revenue, will have a short-term negative impact.
• Kiddopia’s margin recovery is the clearest bright spot: EBITDA margin rebounded to 18.4% in Q4 from 11.6% in Q3, driven by lower user acquisition costs and a successful price increase that did not increase churn.
• eSports is growing fast but remains low-margin and fragile: The segment grew 84% in FY23, but viewership and media revenue dropped due to bans on popular mobile titles like BGMI, and management is not projecting large margin enhancements in FY24.
• The RMG opportunity is real but hinges on regulatory clarity: With central frameworks emerging, the company is pursuing a three-pronged strategy of organic growth, new game publishing, and M&A, but GST clarity is still pending and state-level bans remain a risk.
• What to watch next quarter: Whether the Tamil Nadu ban impact is successfully mitigated, the pace of Kiddopia’s subscriber scaling at the new CPT guardrail, and any positive news on banned eSports titles returning.

Kiddopia: The Margin Recovery Story

• Subscriber growth persisted through seasonal weakness: Subscribers increased to 311,758 in March 2023 despite Q4 being a seasonally weak quarter in the US, and the app remains the #2 Grossing app for kids under 5.
• Cost per trial improved meaningfully: CPT fell to \$35.9 in Q4 from \$37.3 in Q3, and management aims to keep it within a \$35 to \$37 range while scaling up monthly spend significantly from the current \$1 million level.
• Price increase validated without churn penalty: The price was raised from \$7.99 to \$9.99, and churn has remained constant over the last four to five quarters, confirming strong pricing power.
• New content and LTV/CAC improvement support further margin expansion: A coding for kids module was launched, and the LTV/CAC ratio has improved significantly, so FY24 margins are expected to look much healthier than FY23.

Nitish Mittersain: "…parents are willing to spend the extra money that we have increased prices right from \$7.99 to \$9.99 without hesitating and that reflects in our KPIs like churn which is if you see the last four quarters or five quarters that we have shown in this is pretty constant you know irrespective of the price increase."

RMG: Regulatory Overhang and Scale Ambition

• Tamil Nadu ban creates a material, short-term headwind: The April 2023 ban on online games with a chance of money, including rummy and poker, affects a vertical that contributed 20% of FY23 revenue and active players, and the company is actively trying to mitigate the impact.
• Central regulatory progress provides a path forward: The Ministry of IT issued a framework for operating skill-based RMG, and TDS clarity was provided in the budget, but GST clarity is still awaited and management is hopeful for a resolution in coming months.
• Three-pronged scale-up strategy is in motion: The company plans to grow existing games, launch and publish new RMG games from global publishers beyond rummy, and acquire existing RMG companies to drive scale, with consolidation talks already underway.

eSports: High Growth, Low Visibility

• Nodwin delivered 84% revenue growth in FY23: Growth was driven by multiple IPs including Playground, PUBG in South Asia, Digtl, and strong performance in the Wings gaming accessories business.
• Viewership and media revenue were hit by game bans: The ban on BGMI and Free Fire removed the large mobile eSports titles needed to drive maximum viewership in India, and the successful BGMI/Star Sports media program ended, causing media revenue to drop.
• New IPs are being built but cannot fully replace the banned titles: VALORANT Challengers tour, a chess league, and Kingfisher India Premiership 2023 have been launched, but a large surge in viewership requires those large mobile titles to return or be replaced.
• Margin expansion is not a near-term priority: Management is not projecting large enhancements in EBITDA for Nodwin in FY24, as the focus remains on driving strategic growth.

Nitish Mittersain: "…we are obviously interacting both with government as well as the publishers to see what solutions can be found here and we're very hopeful that some positive news will come in the coming months."

Portfolio Turnarounds and Scaling

• Animal Jam margins improved sharply after operational fixes: The team improved the analytics back-end, increased the cadence of content updates, and optimized non-core costs, lifting EBITDA margin from 3% in Q3 to 11.6% in Q4, with a target to reach 20% quickly.
• WCC monetization is inflecting: Ad revenue grew 38% and overall revenue grew 26% in FY23, with EBITDA margin improving from 19.1% to 26.2%, and a new COO from a large gaming studio has been brought in to scale the user base and monetization further.
• Datawrkz lost a low-margin client but is growing new business: The lost client had minimal EBITDA impact, and new product launches including a media works platform and Vizibl product, combined with a cost-arbitrage operating team from India, position it well if the US market weakens.
• Pro Football Network acquisition adds NFL coverage scale: Sportskeeda acquired a 73% stake for \$1.82 million, gaining the #3 ranked NFL-focused media website in the US, and management is very confident of good profits in the current year with synergies expected as early as next quarter.

Capital Allocation and M&A

• Cash position is strong at INR628.3 crores: The balance sheet strength supports both organic growth and strategic M&A, with a shift toward fewer and larger bets at the Nazara level while bolt-on acquisitions happen at the subsidiary level.
• Debt is being considered for the first time: Management may move from zero debt to low debt, but any debt would be purely against the cash flows of the target company and not backstopped by Nazara.
• Two acquisitions were completed in Q4: Nodwin acquired 51% of Branded Pte Ltd for \$1.3 million to drive sponsorship revenue, and an additional 19.5% stake in NextWave Multimedia, the holding company for WCC, is expected to close in days.

Nitish Mittersain: "So what this structure allows us is to continue doing this M&A activity without it sucking up a lot of our operational bandwidth at Nazara level."

Guidance & Commitments

Key Metrics