Nazara Technologies Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Gaming and eSports drove a strong quarter: Gaming revenue grew 14% YoY with 46% EBITDA growth, while eSports revenue grew 26% YoY with 61% EBITDA growth, powered by BGMI's return and Nodwin's event calendar.
• Kiddopia margins expanded sharply despite subscriber dip: EBITDA margin rose from 16.5% to 22.9% YoY in Q2, even as subscribers declined 2.7% due to seasonality and Google UA scaling constraints.
• GST on real money gaming will create a near-term loss: The 28% tax on entry fees, effective October 1, is expected to push Classic Rummy to an EBITDA loss in Q3 FY2024, with stabilization to break-even targeted by Q4.
• Adtech revenue remains pressured but pipeline is building: Revenue declined YoY to ₹50.2 Cr in H1 from a key client loss, though gross margin improved to 24.6% and sales investments have significantly bolstered the pipeline for coming quarters.
• What to watch next quarter: Whether Classic Rummy stabilizes toward break-even as guided, whether WCC begins scaling UA spend by Q4, and whether the Adtech pipeline converts into revenue recovery.

Segment Performance

• Gaming: broad-based strength with one tax overhang. The segment posted 14% YoY revenue growth and 46% EBITDA growth in Q2, driven by Kiddopia, Animal Jam, and WCC. The only drag is Open Play, where the 28% GST on entry fees will push Classic Rummy into an EBITDA loss in Q3 before a planned break-even by Q4. Mitigation includes slightly higher commissions and incentives for users to keep money in the system.
• eSports: BGMI return unlocks momentum. Nodwin revenue grew 20% YoY in Q2, with the second season of the BGMI Master Series telecast on Star Sports and Rooter. H2 is the key period for Nodwin given established IPs and event schedules, and management expects momentum in BGMI-related IPs and media rights to pick up. Margins are guided directionally upward to 10–15% but no specific target was given.
• Kiddopia: margin story intact, growth engine stalled. EBITDA margin expanded from 16.5% to 22.9% YoY in Q2 through disciplined UA spend, but subscribers declined 2.7% in a seasonally weak quarter. Google remains the primary UA channel and cannot scale spends beyond $800–$1,000 per month, capping activations. Management is working with senior Google teams, experimenting with CPT levels, and pursuing new markets as a growth strategy after the Germany experiment underperformed.
• Animal Jam: margins fixed, revenue scale-up awaited. EBITDA margin improved from 11.6% in Q4 FY2023 to 24% in Q2 FY2024 by optimizing non-core costs. ARPDAU rose 46% YoY and new user monetization improved from 1.4% to 2.0%. Revenue appears flat but peak season (Halloween, New Year) falls in the current and next quarter, and paid members are returning strongly. Management expects to start scaling marketing spends in coming quarters.
• Adtech: revenue down, pipeline up. Revenue declined YoY to ₹50.2 Cr in H1 due to the loss of a key client, but gross margin percentage improved from 18% to 24.6%. EBITDA declined because of significantly higher investment in sales and marketing, including a senior marketing hire. Those investments have bolstered the pipeline and conversion rate, and management expects much better results in coming quarters.
• Sportskeeda and PFN: audience scale arriving. Sportskeeda posted 50% YoY revenue growth in H1 and crossed 10 crore users in September. PFN, acquired in March 2023, ranked as the #2 NFL-focused website in the US and achieved EBITDA profitability in September. The Sportskeeda playbook for growing margins is being deployed at PFN, and revenue scale potential is seen as much higher than current levels.

Nitish Mittersain: "I am hopeful that by Q4 we should be able to start spending a lot more in WCC to scale it to the level it really should deserve."

WCC Turnaround

• Franchise strength, execution gap. WCC has not scaled despite a strong franchise. A new CEO from Electronic Arts spent the last six months on groundwork to fix fundamentals before scaling UA spend.
• Online-only transition completed. All users were moved to online-only mode, eliminating a large base of offline, unmonetized players. The result was lower DAU/MAU but no dip in ad revenues, giving clarity on true ARPU for scaling UA efficiently.
• Live operations focus. The new approach emphasizes live operations and monetization loops rather than just content updates, aiming to improve LTV/CAC before spending to scale.
• Global market ambition. Management is increasing focus on launching WCC in global markets where ARPU would be much higher than in India.

Capital Allocation & M&A

• ₹510 Cr fund raise completed in Q2 from Nikhil Kamath and SBI Mutual Fund, adding to an existing ₹820 Cr cash position. The additional capital was raised to enable larger transactions and strengthen negotiation position, since cash is most efficiently deployed from subsidiaries where acquisition pipelines exist.
• Acquisition criteria are specific and disciplined. Targets must generate at least ₹100 Cr in revenue, be largely profitable, and be synergistic to existing businesses in gaming IP, sports, eSports, or Adtech. Management is not looking to launch any new segments.
• Publishing as an acquisition funnel. The newly launched Nazara Publishing division provides capital and services to developers without taking equity, but studios that perform well may become acquisition targets. Close to 100 applications have already been received from developers.
• Real money gaming: cautiously positive. Management views the space as "glass half full" now that GST clarity has been achieved. Bolt-on acquisitions within the Open Play business are possible, and new formats could be considered only if Nazara can be a leader. Past tax claims of target companies need to be resolved before any M&A.

Nitish Mittersain: "We are not in some tearing hurry we want to make sure that just because we have raised capital we do not randomly buy anything which is not helpful for us so we want to be very prudent about how we deploy."

Synergies & Platform Plays

• Datawrkz-Animal Jam synergy working. Internal use of Datawrkz's UA capability on Animal Jam has yielded promising results, and management plans to expand this closed working model to other group companies.
• Nazara Publishing SDK ambition. Management intends to embed a Nazara SDK in each published game to build a large network for cross-promotion and first-party data, creating a platform effect across the publishing portfolio.
• Mediawrkz certification. Mediawrkz earned Google Certified Publisher Partner certification, which is expected to help with increased market penetration for the Adtech business.
• Wings gaming accessories scaling. The business is growing well since acquisition, with stock build-up for Flipkart's Big Billion Days and a new gaming-focused laptop series launched for the festive season. Shubman Gill has been signed as brand ambassador. The business is low-margin but profitable.

Guidance Philosophy

• No hard guidance, by design. Management explicitly declined to provide full-year guidance this year, arguing that it does not want to be boxed in if a fantastic UA scaling opportunity arises in Kiddopia or Animal Jam that would require spending ahead of EBITDA targets. When asked whether uncertainty in the business drove the decision, management did not address the question directly.
• Directional H2 outlook. Revenue and EBITDA growth in H2 are expected to be higher than H1, and full-year margins should be better than last year. This is a directional statement, not a quantified commitment.

Nitish Mittersain: "We really do not know want to box ourselves by giving a guidance if we believe for example that let us say Kiddopia or Animal Jam we get fantastic acquisition opportunity and we are able to massively scale up our user acquisition right so now we do not want to be saying we will give X EBITDA guidance and therefore we should restrain ourselves."

Guidance & Commitments

Key Metrics