Nazara Technologies Limited: Growth should be supplemented by increased adoption and industry dynamics

Plans are there to target profitable growth and Nazara Technologies Limited prioritizes growth over profit maximization so that it can achieve and maintain market leadership in all segments. It has a diversified and de-risked business model, having several levers of long-term growth.

About Nazara Technologies Limited

Nazara Technologies Limited is a leading India-based diversified gaming and sports media platform. Its presence spans in India and across emerging and developed global markets. These markets include Africa and North America. As of Mar 31, 2021, the company has diverse business segments and revenue generation can be seen happening across gamified learning, esports, freemium and telco subscription. Early learning business segment made up 39% of revenue in FY21, with esports and telco subscription business making up 37% and 16%, respectively.

Growth Enablers of Nazara Technologies Limited:                                  

·        Gamified learning and esports segments led this show: Nazara Technologies Limited saw consolidated revenue of INR4,542 million in FY21, exhibiting 84% growth over FY20. Growth was principally because of gamified learning and esports segments. These 2 businesses laid foundation for predictable growth due to user engagement and retention KPIs in gamified learning and multiyear media licensing and game publisher agreements in esports. In FY22, revenues came at INR6,217 million, exhibiting 37% growth over FY21. Its EBITDA clocked INR946 million, which was a healthy 109% growth year-over-year. PAT saw a solid year-over-year growth of 273%, increasing multi-fold to INR507 million from INR136 million in FY21. Such exceptional growth figures stemmed from significant growth and success of its products across regions. In FY22, 49% of its revenues came from esports, 33% from Gamified Early Learning, 10% of revenues were from Telco, 5% from Real Money gaming, and 3% from Freemium.

·        Strong business model: High retention rates of paying users and network effect of leadership position in esports business should help the company achieve revenue growth and consistent improvement in EBITDA margins. The company created strong business model as it made selective acquisitions to play on expected gaming sector boom. Portfolio approach to gaming should be able to reduce shelf-life risks. This is because business model can be altered according to technological advancements, innovations and changing consumers’ tastes. Plans are there to expand gaming portfolio inorganically, offering distinct option value.

·        Nazara technologies limited eyes significant opportunities in gaming market: The company plans to accelerate growth and make progress to strengthen dominance in esports and virtual sports simulation mobile gamers, addressing large addressable segment of sports fans. The company will continue its investment spree in local ecosystem and will continue to look for inorganic growth opportunities. Kiddopia should act as an emerging Ed-Tech player and should act as a growth lever for the company. This growth should stem from increased propensity to pay in markets that are developed leading to easy monetization and higher thrust on e-learning.

·        Silver lining during Covid-19 pandemic: Worldwide, gaming businesses have seen strong growth enablers during lockdown and opportunities generated in gaming vertical accelerated growth of gaming. The company saw sharp increase in consumer interest for gamified learning, social virtual sports and multiplayers games and in viewership of esports on OTT platforms and on TV. Digital and interactive games supported market position as a diversified interactive gaming, gamified learning and new age sports media company. It has invested its capital to lay strong platform for growth and was watchful in investment decisions, while monitoring evolving market conditions closely to ensure high revenue growth rates.

·        Paying subscribers: Kiddopia was having 340,282 paying subscribers as of Mar 2021, exhibiting 172% increase in paying subscribers in comparison to Mar 2020. As of Mar 2022, Kiddopia had 3,08,684 paying customers, exhibiting a fall of 9% over Mar 2021. Cost per trial remained elevated at US$33-36. This was mainly because of change in Apple privacy policy due to which the company had to explore other marketing channels. However, activation ratio from free trial to subscription was ~70%.

·        Industry analysis: Online gaming is undergoing a paradigm shift. By CY25, experts believe that 500 million people will be engaged in online gaming. This should make it 4^th largest component of Indian media & entertainment industry. Variety of industries should be able to experience solid growth such as esports, fantasy sports, casual gaming, and other games of skill. Strong user engagement will be visible in gaming event IPs, such as esports leagues, national online gaming tournaments, and multigame platforms. Global gaming market size should touch US$218.7 billion in CY24. Higher smartphone penetration, rise in esports, and healthy growth in global sports media rights should be able to stem growth. Number of mobile gamers should be able to compound at ~11% from CY16-22, propelling significant growth in gaming revenue. Esports segment is seeing a boom in recent times both globally and domestically. Massive uptick in content viewership was seen, with ~5.5x growth in CY22 than in CY18.

·        Efforts made to improve revenues should lend some support: The company evolved from being curation and distribution of mobile gaming content company. It has now become a developer and publisher of in-house created gaming and media content IPs. It leverages distribution pipelines globally spanning across India, Africa, Middle East and North America. Nazara Technologies Limited worked in FY20 to strengthen leadership position in esports and cricket simulation mobile game in domestic market and added Sportskeeda. It raised its stake in Halaplay to ensure several touch points with new age sports fan. The company strengthened its presence in kids vertical and made an acquisition of majority stake in Paperboat Apps in FY20. Paperboat Apps publishes subscription app carrying brand name of Kiddopia in North America. The company has diverse business segments and revenue generation is happening across several categories.

Conclusion

The company is a hyper growth business model and it has repository of IPs across segments. Entire gaming network was created by acquisitions, and this model is difficult to replicate. Focus on pursuing inorganic opportunities should help in additional growth optionality. The company is country’s only listed gaming company having business model which is quite scalable.

It was able to compound its revenue at ~58% between FY20 and FY22, and has seen EBITDA growth of ~109% in FY22 over FY21. It is being operated through astute capital management mindset, having a focus on profitable growth. This emphasises self-sustainability over external investments. As of Mar 31, 2022, cash and bank balance (including liquid investment) came at INR7,321 million, with net cash flow from operations clocking INR621 million. Gaming industry in India touched new heights as there was record-breaking participation across demographics. Growth streak which was started during lockdowns crafted new history in Indian gaming industry.

Globally, digital continues to act as a primary enabler of ad market growth and this trend is expected to continue. In CY21, digital ad spend increased 32.0% following COVID in CY20. Forecasts say that this should reach US$410 billion, making ~55.5% share of global ad spend. The company will pursue investment and acquisition opportunities in underserved markets and geographies which can complement its existing operations.

The company plans to build on its leadership position to leverage India’s strong growth potential as it focuses on strengthening relationships with mobile gamers, sports fans and partners. While the company continues to look for growth opportunities both organically and inorganically, main focus is on improving presence in Freemium segment principally in developed markets.

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