Nazara Technologies Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Flat revenue, better profitability: FY24 revenue grew just 4.3% YoY to INR 1,138 crores, but EBITDA rose 16.5% and PAT from continued operations jumped 41%, driven by margin discipline and a strategic reset in Ad Tech.
• Kiddopia is hitting a subscriber ceiling: Management admitted the linear user-acquisition approach is "not hitting a kind of a dead end" and the business will plateau without an alternate route, pinning its hopes on IP licensing deals to unlock organic traffic.
• A war chest for a global gaming roll-up: The company raised INR 950 crores in equity, leaving a net cash balance of ~INR 1,450 crores, with a clear mandate to acquire gaming IP studios in Western markets and consolidate the Esports space.
• Esports and new games are the FY25 growth bet: With games getting unbanned, a lag effect means the upside flows into FY25; NODWIN's owned IP "Playground" saw revenues at least 50% higher than Season 2, and a major new Animal Jam game is set for beta by year-end.
• What to watch next quarter: Whether the promised one or two IP licensing deals for Kiddopia and Animal Jam actually close, the launch and traction of the new WCC game, and any M&A announcements as the company targets closing at least a couple of acquisitions by Q2 FY25.

The Kiddopia Plateau & the IP Pivot

• Subscriber growth stalled: Management stated the linear approach to user acquisition is "very evident in the last few quarters" as not improving, and they expect the business will plateau if they cannot break through via an alternate route.
• Product metrics are healthy: Retention, conversion, and activation rates are all holding; the root cause of the subscriber decline is explicitly tied to constrained user-acquisition spending, not product weakness.
• ARPU still trending up: ARPU increased around 1% QoQ, and management expects the upward trend to continue, supported by older customers on higher legacy price points and periodic small discounts that don't fully translate.
• IP licensing as the breakthrough: By bringing in popular global kids' characters, management expects to drive significantly more organic traffic, providing scale and a much better blended cost per trial; they are in advanced conversations and expect to close one or two deals in the next quarter or so for both Kiddopia and Animal Jam.
• Merchandising is nascent: The Captain Kit character is expanding into US merchandise, but management declined to break out revenue numbers, calling it still very small with more details promised in coming quarters.

Nitish Mittersain: "the linear approach of trying to solve user acquisition clearly is not hitting a kind of a dead end, right, which is very evident in the last few quarters. We have tried many things and it is not really improving. So, we expect that the business will plateau if we are not able to breakthrough through an alternate route."

M&A Strategy & the Consolidation Thesis

• A global gaming IP roll-up: With substantial cash reserves, the primary M&A focus is acquiring core gaming IPs similar to WildWorks and Animal Jam, predominantly in Western markets with a US monetization lens.
• India arbitrage and AI as margin levers: Post-acquisition, management sees clear opportunities to expand margins by moving backend work to India, saving on platform fees, and deploying AI to optimize studio operations and enhance player engagement.
• Founders stay incentivized: Management will not do any deal that does not keep founders and management highly incentivized, using structures that may include some equity but increasingly favor cash bonuses and alternate performance-linked payouts; they are not keen to issue equity easily going forward.
• Deal structure is all-cash: Predominantly all-cash deals are the plan, reducing equity issuance unless absolutely necessary, while still creating liquidity for founders at higher valuations so they can see the value of monetizing their stake.
• RMG M&A is on the radar but uncommitted: The company is active in conversations with a couple of large players in the real-money gaming space but has no definitive timeline for a deal.

Nitish Mittersain: "People are looking at Nazara as a really potential consolidator of their businesses, not only in India but also in markets like the US which throws up very good opportunities to us."

Esports & NODWIN: The FY25 Growth Engine

• Lag effect from unbanned games: With games getting unbanned, many properties are returning, but the revenue upside is expected predominantly in FY25 rather than FY24; media rights in H2 FY24 were not great.
• Playground IP is scaling: Season 3 drew 2.4 crore viewers, with sponsors like Amazon and Mini TV returning, generating revenues at least 50% higher than Season 2; management sees global potential, stating if taken to markets like the US, "sky is the limit."
• NODWIN revenue dipped in Q4 but the pipeline is full: Q4 revenues decreased 9% to INR 99.1 crores, but the financial impact from acquisitions (Comic Con India, Publish.Me, Ninja, Freaks4U) will reflect in FY25 and beyond.
• Competitive moat intact: Management acknowledged competition is good but stated NODWIN is way ahead in market share, brand awareness, and partnerships; the overall Esports market should see good expansion in FY25 with NODWIN as the maximum beneficiary.
• International expansion underway: A lot of international activity is in motion, including an investment in Freaks4U, the largest Esports tournament organizer in Europe, with more announcements expected in coming quarters.

New Game Launches & Studio Pipeline

• WildWorks building a major new title: An entirely new game is in development, expected to enter alpha in 3-4 months and beta by the end of FY25, representing a significant growth vector beyond the current Animal Jam base.
• WCC full acquisition and new launch: Nazara acquired the remaining stake in World Cricket Championship, brought in a CEO, scaled up marketing, and is launching a brand new game in Q1 FY25; global expansion onto consoles and PCs is planned.
• Animal Jam monetization innovation: Q4 revenue increased around 7% to INR 24 crores, bolstered by the success of Wishing Coins and the Wishing Wells feature introduced to enhance player engagement.
• AI task force building a replicable playbook: An internal AI task force is testing innovative applications across a couple of studios, focusing on automating product development, personalizing player offerings, and optimizing user acquisition creatives, with the intent to create a playbook that can be replicated across all studios.

Nitish Mittersain: "I think that is a game changer and I think Nazara is really doubling down on how we are going to use AI to one, optimize these studios as well as enhance their ability to engage with players, to analyze data etc., and I think that could potentially be a game changer for us."

Segment Performance & Margin Trajectory

• Core gaming margin target: Management believes core gaming businesses should generate 25-30% margins, with enough room to increase over the next one to two years.
• NODWIN EBITDA contribution to improve: NODWIN is a large revenue business not contributing much EBITDA currently; a few percentage points of margin movement there will make a significant impact on overall absolute EBITDA.
• Ad Tech growth returning: Management expects the Ad Tech business to bounce back to growth in both revenue and EBITDA in FY25, with growth status achievable from Q2 onwards.

Guidance & Commitments

Sudhir Kamath: "I can assure you that we are taking absolutely no decision with the short term quarter-on-quarter pressure and only taking what we truly believe is the right decision for the company. Of course we may be wrong sometimes, but we will take measured risk and only take decisions which we believe are truly in the interest of the growth of the company."

Key Metrics