Nazara Technologies Limited (NAZARA) Earnings Call Transcript & Summary

So I think most of the participants have joined in, we can start the call. Thank you, Manish, for spending the time, and thank you to all the participants. As discussed, this will be purely on the call -- on the pre-results side as to -- on a directional side. No numbers or KPIs will be shared in this call. Thank you. Over to you, Manish.

Thanks, [ Ami ]. Thanks, Rahul, for doing it. Hi, everyone. Good to be among friends. Before I kind of get into the commentary narrative and all of it, I want to introduce Anupriya, who's joined me as Head of Corp Dev. She's been with me for now 2 weeks or less than that, but has kind of picked up. We read a lot of your research reports and earnings call and everything. And so it's great to have her, and I'd like to introduce herself.

Hi, everyone. Nice to meet you. As Manish said, I joined around 2 weeks back. And prior to this, I was heading corporate strategy at digital media startup called Pocket Aces. Prior to that, I spent around 7 years in investing, a couple of years in General Atlantic and 5 years at Everstone mid-market private equity fund. So all excited to roll up our sleeves and work with Manish and Nitish and scaling our business.

Great. Thanks, Anupriya. Right, as we discussed, this is a directional call. And I'll keep it very short and crisp. Nitish and I had told in Q4 earnings call that this year, we will grow at 50% plus. And I think we continue to really be very bullish about our businesses, our performance of our businesses. And this quarter, again, it will grow around 55% to 60% in terms of revenue. We had also mentioned that in terms of EBITDA margins, we'd like to look at 12% to 13%, and we are on course to achieve those kind of EBITDA margins. One of the key feedback, which I continues to get is they were -- and I've heard it from multiple of you on the call that we had 2 growth engines when we did IPO. One was eSports segment, other was gamified learning segment. And with gamified learning segment having headwinds, there is only 1 growth engine story, which is now very tangible viable. I'm very pleased to kind of really bring in a very strong growth engine into the mix, which is already -- in this quarter, you would see it would become 14%, 15% of revenue at Datawrkz. The company operates in a very large TAM. As you are aware, it's strategically very important for us to have a very strong tech play in advertising space. The company is growing 50% year-on-year and generates 9% to 10% EBITDA margin. So all kind of tick boxes, which are there. And as growth keeps happening, we expand into more segments, including gaming segment. So there is eSports segment continue to fire, what you guys have spoken to me during this quarter also. Both Nodwin and Sportskeeda are performing exceedingly well. Acquisitions for Nodwin are playing out very nicely. Organic growth also is happening very strongly. So Nodwin, Sportskeeda, they are firing. And eSports segment, hence, continues to drive well. Our Datawrkz is the second growth engine, which is clear tangible, as I mentioned. And you will see more of it during the quarters, which are coming in. And this quarter, when we have earnings call, we can deep dive on that. Our Paperboat business is absolutely into headwinds. It's not an isolated phenomenon, as all of you have spoken and have spoken in the past. It's a global phenomenon, where everybody is kind of trying to figure out how to live with new normal, whether it's a new normal of expense and ROI or unit economics or new normal of growth. Kiddopia in our opinion will remain continue to be flat line on the revenue growth. On the net new subscriber, it will decline because the cost per trial is really increasing, and we don't want to have a poor ROI and slope. So we are okay to really prioritize till some point of time we find solution to kind of increase our EBITDA margins in future. We did a lot of experiments in this quarter to ensure and see that if we can find alternate ways of net new subscriber growth, but we have not been able to kind of find a green shoot or a breakthrough. And hence, on this quarter, you will see some kind of Paperboat EBITDA margins lesser, but coming quarters, experiments will not be there, and we'll be focusing on what we understand what's the ROI curve we know in performance marketing. That's what we'll focus on. So what's going well is eSports. What has been added as a more growth engine Datawrkz. What is really firing well is also OpenPlay and real money gaming space. We have also kind of really seen a good traction in our Publishme in Middle East, starting to show signs of promise. And what's not really working well is on Paperboat, as we all know. So that's the kind of high-level summary. But the beauty of our strategy of diversified portfolio is that you will find growth engines, which we are really looking at acquiring company and then growing our core portfolio, which is what we have done in the last 4, 5 years. In Datawrkz, we concluded the transaction in March, April. Consolidation happens in April, but we have been working with teams since last September, October. And again, you can see a 50% growth. So a track record of working with the company and growing continues. And in that line, we are very, very confident that by the end of this year, you will see beyond these 2 growth engines, 2 more things which should be firing. One is scale based real money gaming engine besides OpenPlay, some acquisitions as well as the game development studios, whether in premium or gamified learning. So we are very actively working. We have an M&A team, which is doubling down on those activities. A lot of discussions are happening. And we want to really ensure that we have a very robust diversified, not just the portfolio, but diversified growth engines by the time we finish this calendar year. So that's the kind of summary. I will kind of open it up for any Q&A.

[Operator Instructions] Deep, you can go ahead with your questions.

Manish, first question is on this eSports. So the event which we are doing right now, this is one of our new IPs, right? So the 2 IPs, which we have, will happen over the year sometime later? And how many more such IPs do we plan to do this year? That was one. Second given that you remain very bullish on the real money space, it would be helpful if you could better explain this whole GST change and how does the new GST norm of applying the rate on gross gaming revenue affects the payouts and/or the margins in that space?

Deep, thanks for the question. On the eSports piece, you're absolutely right. This is an IP, which we created, along with Krafton, Star Sports and other partners. This is the first season of this IP, fantastically well. I think it's a seminal moment for eSports in this country to be on mass television. We are already seeing amazing amount of results, and I'll keep the thunder for the earnings call and hopefully, Star would be able to share those numbers publicly with all of you very soon. But we are very, very excited with the response and the buzz, not just in the player community, but also in the viewer community. So bringing it on television has really also helped to bring in sponsors, which [indiscernible] would have not really been looked at only on a digital platform. So I think that's a really big, big league with eSports in -- as an industry has taken and Nodwin has been a catalyst to kind of drive that in support with Star and other partners. How many more IPs you will do? Deep, as you would appreciate, these are the IPs, which we already have in existing portfolio, will continue to drive them. But the new IPs are also a function of ecosystem coming together, publisher, broadcaster, brand, all of it. We are in discussion with multiple such new things in India and outside India. And as you kind of really dot the i's and cross the t's and are able to kind of stitch that partnership because that partnership is very essential for you to get the number of viewers, the distribution reach, which is the sole purpose for you to build these IPs. So at this juncture, we do not have a number of IPs in our mind. It is about what is the larger than life. Partnerships, you can stitch together to create a long-lasting high distribution reach IPs. So that's what we are really looking at. On the real money gaming, I want to really kind of just correct you a little bit. We remain cautiously optimistic, is the word I would like to use, rather than bullish. We understand that there is a great desire in the government to kind of engage with industry to create a regulatory framework, both on terms of defining game of skill as well as GST. There are discussions happening on 18% versus 28%. That's at one level, what should be the rate. The second level is at what denominator should it be applied. There are discussions which are happening with the government, with the different state finance ministers who form the part of GST Council. And the discussions are on that the rate should be levied on gross gaming revenue, which is the money which a platform makes, not the gross gaming revenue, Deep, as you might have been understanding is where a player wagers. So player wagering is basically a wagering amount of wagering transaction volume, but the gross gaming revenue or in simplified terms is the revenue, which platform makes on which industry is okay to really have 18%, 28%. And that's where the discussion and dialogue is happening. And the clarity should emerge over the next month or 2 months.

Good afternoon. Good to have you with us. So Manish, question is on eSports. So it looks like eSports is going to drive this quarter also. It will do the heavy lifting. I just wanted to understand within eSports, where do you see faster growth in this quarter, specifically, whether Nodwin in terms of growth will lead or Sportskeeda is going to be the growth driver?

Abhishek, I have a healthy competition within the eSports segment and I love that. And I would love to continue on that. The base effect also starts playing. However, I'm very happy that both of them will grow [indiscernible] of 60% -- 50%, 60%. So I'm not complaining. Which is going to drive, which is going to be 80% or 60%, 65%? Honestly, doesn't matter to me. What matters is the directionally what value creation items they are doing or whether they are kind of really creating more IPs, they are building more partnerships in Nodwin or in Sportskeeda, we are really increasing more sports and our ability to kind of launch sports with less capital and high -- more profitability. Launching new video formats. I think that's where our focus is. Both the businesses are really on a good growth trajectory.

Okay. That's good to hear. Where I was coming from is...

Abhishek, I want to correct is the word which you used heavy lifting. As I mentioned, this quarter, we you see eSports broadly in the range of 43% to 45% or 46% contribution. Datawrkz will contribute to around 14%, 15%. And your -- the heavy lifting piece is not just going to be limited to eSports in terms of growth. You will see far more segments contribute -- starting to contribute to the growth of Nazara overall, ensuring that we have a 50% plus growth without any further M&A has -- which needs to be done. And this is the current portfolio as we speak today.

Okay. So just hopping on this. So in Nodwin, you had mentioned last quarter that around INR 50 crores to INR 60 crores is coming -- will come from off-line events. So have those off-line events started or that growth is still in the subsequent quarters?

Some part it has started. Some of the properties of OML, which was -- have started. The entire -- if you see the seasonality which I've spoken about in the past, the best off-line months are Q3 and somewhat of Q2. And that's where if you see the Nodwin quarter split, the quarter 1 only contributes to 18%, 19% of the full year revenue. And that's because of two reasons, our off-line happens towards the second half of the year -- calendar year. And the worst white label events as well as own IPs gets bunched up.

One last question on this. Quickly on Sportskeeda. We were planning to put some sales team in the U.S. to start the direct sales there. So is that something which you have already started and therefore, we are seeing better growth in Sportskeeda? Or is it just organic growth through direct sales in U.S.? Sorry, the reason was with IPL -- even though IPL was there, but generally, a slightly softer season in sports. So either this quarter or the next quarter growth should slow down on it just because of the seasonality? So I just wanted some color on that.

So Abhishek, the beauty of Sportskeeda is, it's a very diversified sports. This quarter, as you rightly said, was an IPL. But you didn't have -- it's an off-season for WWE. It's an off-season for any NBA. In July, August, those events will start. So given that you have a different sports and IPs running for different lines. Some leagues are running in the U.S. for 9 months, some are running for 6 months. Your IPL is running here. There could be a World Cup in the second half. So given that you are working across geographies, across sports, we don't have that much of a seasonality effect, so to say, of sports not happening. However, the direct sales impact because of IPL surge is definitely we see in this quarter. And we have still not put any foot on the ground on U.S. because we want to be very careful about whom we hire and how we hire. Currently, the entire U.S. revenue is coming through programmatic and not through direct sales.

[Operator Instructions]

I have lots of friends here. Rishi, Sundar, Akshat, Sourav, Jinesh. Guys?

Yes. This is Rishi here. Can I go ahead?

Yes, yes, please. Waiting for you.

All right. So Manish, one thing, just wanted to understand a little bit more on this entire RNG part where discussions are on around GST. So basically, I mean just to understand what is the worst case scenario there? And I'm assuming that if 28% GST is levied on the wagering part that is probably the worst case or is there anything else also? And in case that happens, does that make our business viable at all in any circumstance?

So Rishi, 28% on wagering will be quite a deathly blow or deadly blow to the industry. There is no 2 bones about it. Our ability to pass it to the consumer and then consumer really looking at what winning, that will substantially impact 2 things: One is your new user acquisition, will get impacted because the churn would be very high, the person will lose the money much faster if you are passing it on. Second is your concentration of the revenue to [ wage ] to people, who are high spenders, will increase or highly skilled people, and that's also not good for the platform because you need to feed fishes for whales to survive. So it's not going to be really an easy viability call for the industry. But the good news is, at least in our dialogue and interaction, the mood in the center is not that we want to kill this industry. It is about we want to support this industry and how do they really find the right framework.

Understood. Okay. And no further developments on any of the states, right, versus, say, 3 months ago?

As of now, no.

Nothing, right? All right. On the Kiddopia bit, so what are we doing incrementally, right? So I understand that it is a widespread problem that pretty much everyone is facing. But what incrementally are we or can we do which can potentially help? Or is it that we just have to wait and watch how things transpire? I'm just trying to understand, I mean, is it more like we just have to wait and see how -- where the industry moves? Or is there anything else that is progress?

Rishi, our thinking is that preserve cash when you don't understand. Use that cash to do other M&A, which can help you synergistically to increase your reach or your IP distribution. For example, any kind of new acquisition, which you might do, combination in Paperboat or at corporate of any other gamified learning company in 7 to 12 or 2 to 6 or acquired say kind of YouTube channels, which can add to the reach through Paperboat. I think all of those options are is what we are looking at. As far as Paperboat is concerned, our view is that whatever efficiencies of performance marketing, you can optimize, optimize. Our experiments of brand marketing or experiments of new other channels, which we had tried multiple things in the last 1 year, hasn't really converted into new subscriber addition and has only resulted in increase of CPT. So we are kind of really saying that, "Hey, that's kind of start looking at optimizing CPT rather than optimizing for subscriber growth."

And Manish, is there a way in which we can re-prioritize our dollars spent on this on probably higher customer retention, right? Because I'm assuming churn rates are still 4% to 5% on a monthly basis. You can correct me if I'm wrong. But rather than trying to find out newer ways which are still not visible. Is there a way in which we can reduce this churn rate that we currently have?

So Rishi, theoretically, yes. The challenge which we have is already were pretty strong compared to all other -- through this process of M&A, I'm seeing other companies. So -- but there is never say no when it comes to retention churn because I'm a diehard believer that even a small point, saving and retention can have a compounding effect. So absolutely, the answer is -- our aim and effort is constantly there. Can we find something which can move the needle tangibly rather than just very incrementally? That's the question.

Okay. Fair enough. That's it from my side. Just -- is the reporting date being decided?

We are just finalizing with our auditor. It will be -- [ Ami ] will convey you very soon.

[Operator Instructions]

Sundar here. Manish, just one thing is that eSports revenue has not been very specifically. Is there any change to the revenue mix this time with Star coming? Is this that the revenue that we get out of media has become a significant part right now because somewhere we've had long conversations in how underutilized that part of the revenue is. So is there something changing from that part that's leading to the 55%, 60% growth that we're talking on Nodwin?

Sundar, you're absolutely right. If you look at from Q4 to Q1, there is a significant jump in media rights contribution. And Star is not fully baked into those revenues because it transcends the Q1 and Q2. But the directionally, yes, you are absolutely right. With the growth of multiple OTT platforms like Glance, Loco, Rooter and now Star kind of doing it. I think, this year, we will see many more even linear sports TV channels jumping into the fray after the results of the Star are really announced. So that's point one. Point two, I think that change in mix is happening because, if you remember, we had acquired gaming accessory business to unlock the community value in Nodwin, and that business is doing extremely well. And in this quarter, that would have roughly around as a contribution, if you were to see, they will be contributing 19% as compared to 4% last quarter. So that's the jump which you will see and you will see that growth happening because the demand for gaming accessory. Now if you were to further take a step back, the way Nodwin is really looking at, Nodwin is looking at the whole value chain and mind space and how do we really present and kind of dominate different aspects of value chain and the mind spaces. That's how the evolution of Nodwin is happening as we go along.

And do we have a very similar setup like what we used to have with Viacom, where advertising units are shared with us?

So if you look at from a Star, even better we have because you are selling the sponsorship directly.

Sir, Divyesh here. Just one question. Sir, in the last call, you basically spoke about that you were going to explore the YouTube platform to increase the Nazara base. So I just wanted to be clear that you already tried that and didn't work right. Is that what you're saying?

Absolutely 100% correct.

Okay. And secondly, how should we see the underlying market growth? Is your market share or the rankings of Kiddopia stable or they are also like down -- going down?

Absolutely stable.

Okay. So you're saying there's no [ subcapitation ] happening at the industry level. Is that understanding correct?

Yes. [ 2 dollars ] statements statement for me to make based on just the rank data. The causality of that rank, the subscriber, I don't have any data. So I will not hazard that leap of faith.

And also in the last call, you talked about $1.2 million spend per month in May and June. So I guess that would have happened. That's why you're seeing the margins may be weaker. But going ahead, you're saying that it will drastically come down?

Prefix of drastic is a subjective, but it will come down quickly.

Manish, Sundar here again. Just one clarification in line with what Divyesh asked was in terms of margins in Kiddopia. Would we not have benefited out of the lower commission, which could offset the kind of higher marketing spends that could have happened at Kiddopia?

Which commission, baba?

The commission -- gross to net commission, which Apple charges?

No, I'm saying that Apple hasn't changed anything and that slab structure of 15% and then 30% is something, the scale is higher. So if you look at 2 years back, our weighted average would have been in 28%, 29%. Now it's 25%. But that effect, you got it in the last year itself.

So there's no further reduction to that. I thought they were migrating towards an 18% number?

No, not.

[Operator Instructions]

Manish, this is Rishi here. Just one quick follow-up. So on the Kiddopia side, are you not witnessing other competitors becoming more intense on pricing? I mean, are some of them trying to use pricing as one of the ways to try and get subscriber addition or everyone is just sitting like that waiting for things to change?

Rishi, I have not seen any pricing change on [indiscernible] which are #1, #2. And the smaller players, which could be very long tail, I don't know. But at least, as I mentioned in my discussion with multiple gamified learning companies from an M&A lens, I'm seeing very high cost per trial, very high change in their CACs post an Apple and everybody is kind of struggling. And that's the tension they have when there's subscale and they are burning money.

Yes, I would wonder because if -- when the environments are tough, either the fringe players become irrational in terms of pricing or they basically fall out, which should ideally result in market share consolidation. And as a result, potentially some benefit on subscriber addition also. So just trying to understand which way it could go?

So Rishi, this would have been very true what you're saying is if the market was only -- consumer was only confined to this subscription market. As I mentioned in the past, this consumer is looking at an YouTube also, it's not they are discarding YouTube or they are looking at Disney+ also and they are looking at some other games also and then subscription apps. So their share of time has a larger universe than just a subscription ecosystem. And that's why subscription ecosystem, if they were confined and it could have been a zero-sum game with the fringe players kind of falling off and the leaders kind of taking advantage. But here, the question is not about utility or convenience, it's about share of time spent. And if the user is not getting the discovery of a new kind of content, they're very happily doing what they are doing. Anything else guys or we can wrap it up?

One quickly, Manish, Abhishek here. On this Kiddopia bit, what are the -- I mean, are you seeing that after COVID lockdown has been lifted, people -- students have started going to school, parents probably want less screen time for their kids? How much that is impacting demand in general? I mean, is it only because of the policy change at Apple's end or in general demand after the COVID restrictions have kind of come off?

So Abhishek, I have just kind of answered this in the past. But I'll just give you -- highlight to you 2, 3 things. One, this is a 2 to 7 play, predominantly 2 to 6, which is really very, very young kid going to play school, maybe 2 hours, 3 hours or home schooling in U.S. ex-popular, right? And they are not really kind of -- during COVID, pre-Covid, post-COVID, they were -- it says that they're not using screen and during COVID, they started being on screens and now they are all off screens. They are digital native kids, and their screen time is whatever the screen time parents allowed. So it's not that they were offscreen. And that's the same behavior we have seen in our product from an engagement point of view. The number of minutes which they spend per day, the number of times they come in a month, the retention cohorts, I have not seen any difference in either of them. So this kind of cohort is not staying outside home, and now getting 4, 5 hours, 6 hours, 7 hours of school and then homework being brought back, and hence, they don't have time or this is not the cohort, which was looking at convenience of tuition classes in any Class 8 to Class 12 or this is not the cohort even we are talking about, which has one -- the parent was at home and hence, child was doing it because that's not the audience we are looking at. This audience predominantly has their own tabs, has their own iPads or whatever it is. And that's where the consumption is happening.

Since there are no further questions, we can close the call. Over to you, Manish, for closing remarks.

I think pretty happy with what we have delivered and very eager to kind of talk to you guys at the earnings call and look forward to getting you more detail when we have earnings call and any subsequent interactions. I just wanted to kind of say thank you for all the things which you have done in the last 1 year and continue to have interaction with you and Anupriya has joined me. So I would really urge her to kind of interact with all of them, take help of SGA because the bunch here which you see on the screen has been the biggest evangelist for Nazara.

Sure. No problem.

Yes. Thank you, guys.

Thank you.