Nazara Technologies Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Fourteenth straight profitable quarter, M&A reshaping the portfolio: Nazara consolidated Kiddopia and NODWIN, acquired Fusebox and Freaks 4U, and was named preferred bidder for Smaaash, all while keeping the bottom line in the black.
• Kiddopia subscriber decline slowed, IP deals are the next catalyst: Cost per trial fell, activation and ARPU improved, and churn dropped; the rate of subscriber loss decelerated. Management expects IP partnerships to restart organic growth, with deal announcements targeted for Q2 or Q3.
• E-sports revenue grew 12%, EBITDA jumped 85%: NODWIN’s profitability was muted by investment in new events, but the segment’s operating leverage is kicking in and a healthy event pipeline points to accelerated growth ahead.
• RMG net revenue hit hard by GST, but player activity held: Gross gaming revenue declined only slightly, while the higher GST rate sharply compressed net revenue. The organic focus is now on operating efficiency to reach profitability under the new regime.
• What to watch next quarter: Whether Kiddopia IP deals are announced, the pace of BGMI Master Series revenue flowing into NODWIN’s media line, and any movement on RMG M&A as the government wields its new power to waive legacy tax claims.

Kiddopia: Subscriber Stabilization & the IP Pivot

• Subscriber metrics turned a corner: The rate of decline in subscribers was lower in Q1 FY25 than in any prior quarter, while cost per trial decreased, activation rate increased, ARPU improved, and churn reduced.
• Marketing spend is deliberately capped: Spend was held at roughly ₹0.24 cr because past attempts to scale user acquisition pushed CPTs and churn beyond comfortable levels. Growth will now come from non-UA measures, primarily IP integration.
• IP partnerships are the organic growth engine: Management is in discussions with large global IP holders to integrate popular kids’ characters into Kiddopia, replicating the model Fusebox uses with TV IP to drive organic traffic. Deals are expected to be announced in Q2 or latest by Q3, with IP-driven content launching in Q3 or Q4.
• Full ownership unlocks operational freedom: With the remaining stake acquired, Nazara now holds 100% of Kiddopia and expects operational differences to show in coming quarters, especially around IP-based games and other expansion plans.

Nitish Mittersain: “I think the biggest opportunity here is to boost organic traffic and for achieving that we need to partner with popular IP characters of kids from all over the world and integrate them into Kiddopia.”

M&A: Consolidation, New Assets & the Smaaash Bid

• Three acquisitions closed, two more bolt-ons added: Nazara acquired the remaining stake in Kiddopia (PaperBoat apps), bought UK-based IP gaming studio Fusebox, and NODWIN took 100% of European e-sports company Freaks 4U via a ₹271 cr share swap. Sportskeeda added SoapCentral.com and Deltia’s Gaming.
• Freaks 4U brings high-value geography and IP: The acquisition lets Nazara expand into Europe and leverage teams across India, Turkey and other markets, with Freaks 4U’s IPs now available for those regions. Consolidation into NODWIN begins July 1, 2024.
• Fusebox is a single-game story with a platform ready to scale: Over 90% of revenue comes from the Love Island game, but the underlying platform, tech and processes can be leveraged for other IPs. A new Big Brother IP game is expected by end of FY25 or early FY26. The team has also successfully decoupled game seasons from TV airing seasons, spreading revenue more evenly across the year.
• Smaaash Entertainment bid won, NCLT approval pending: The committee of creditors selected Nazara as the preferred bidder, but court approval is still awaited and expected to take a few more months. Management declined to provide tentative five-year numbers at this stage.
• RMG M&A is stalled on legacy tax uncertainty: Nazara is still looking at sizable market leaders or small tuck-ins to combine with OpenPlay, but legacy tax claims add complexity. Management is waiting to see how the government uses its new budget powers to waive past tax rates before transactions can move faster.

Sudhir Kamath: “And specifically, in RMG there is also the added complexity of the legacy tax claims which are there. So, we do need some resolution. I do believe as we have seen in the budget the government has now got the powers to waive past tax rates. We are just waiting to see how the government uses those. And then I think some of these transactions will do us much more quickly.”

E-sports & Gaming Media: Revenue Growth with Investment Drag

• E-sports segment delivered strong operating leverage: Revenue grew 12% while EBITDA surged 85% in Q1 FY25, though NODWIN’s profitability was muted by continued investment in new events and IPs.
• Media revenue uptick is only a partial read: NODWIN saw a ~45% YoY increase in media revenues in Q1, but this does not yet reflect a lot of the BGMI Master Series revenue, which will flow through in coming quarters. Management asked analysts to wait a quarter or so before assessing the full streaming quantum.
• Sportskeeda continued its growth trajectory: Both revenue and EBITDA expanded, supported by the acquisitions of SoapCentral.com and Deltia’s Gaming.
• FAU-G Domination publishing deal signed: Nazara signed a contract to publish a new game, distinct from the earlier FAU-G title. The game is in pre-registration, with full release expected around Diwali (end of October). Revenue share percentages were not disclosed.

Ad Tech & Real-Money Gaming: Margin Reset Underway

• Ad Tech revenue dropped by design: Nazara strategically shifted away from lower-margin business, causing a YoY revenue decline, but gross margin improved significantly due to a higher share of product business. Continued investment in product development and US marketing kept EBITDA subdued relative to Q1 FY24.
• RMG net revenue compressed sharply by GST: Gross gaming revenues declined only slightly, indicating customers are still playing at nearly the same levels, but the increased GST rate caused a sharp drop in net revenue after tax. The organic focus is now on operating efficiencies to achieve profitability within the new regime.
• GST notices are contained, for now: Notices were received on two subsidiaries, OpenPlay and Halaplay, neither of which contributes material revenue or profitability to the consolidated performance. Management called it an industry-wide issue with hearings ongoing but did not state whether any provision would be made.

Portfolio Management: Deconsolidation, Seasonality & the FY27 Goal

• Brandscale deconsolidated to stem losses: Nazara deconsolidated Brandscale because the subsidiary wanted to venture into a business stage not conducive to Nazara’s model and was making losses Nazara could not sustain. No impairments have been taken yet, but a potential risk of future impairment exists.
• Seasonality is back-half weighted: Nazara’s aggregate business is seasonally higher in the second half of the year. Fusebox, which historically tracked TV airing seasons, has now decoupled its game seasons, making its revenue more evenly spread.
• PFN product launch timed for NFL season: PFN created a new product with support from the Sportskeeda team, to be given to customers for the NFL season starting September. Management is waiting to see if 50% off-season growth replicates in the actual season.
• Acquisitions are meant to accelerate the FY27 goal: The recent deals are expected to help Nazara reach its target of ₹300 cr in EBITDA by FY27.

Nitish Mittersain: “I believe that with all the activity that is currently ongoing, the remainder of FY25 should be exciting for us and we will continue to work hard to deliver value for all our stakeholders.”

Guidance & Commitments

Key Metrics