NAZARA - Nazara Technologies Limited Share Price

In the earnings call for Q3 FY '26, Nazara Technologies management provided a positive outlook with key forward-looking insights. The company reported revenues of INR 406 crore for the quarter, a decrease of 24.1% mainly due to the deconsolidation of NODWIN Esports, while EBITDA increased by 29.4% to INR 67.8 crore, resulting in a margin of 16.7%. Over the nine-month period, revenue grew 29.7% year-on-year to INR 1,431.2 crore and EBITDA surged 73% to INR 177.2 crore with a margin of 12.4%.

Management highlighted Kiddopia's return to subscriber growth, driving increased focus on user acquisition and data analytics. The company soft-launched Animal Jam on the Roblox platform, anticipating these new platforms will support future growth. They also mentioned ongoing efforts to integrate AI components into games, which is expected to positively impact future performance.

For specific segment performance, the Gaming segment saw revenue growth of 66% year-on-year to INR 257 crore, with an EBITDA margin of 25%. Mobile gaming revenue hit INR 534.7 crore, up 48% year-on-year. Offline gaming also performed well, with Smaaash and Funky Monkey reporting respective revenues of INR 24.3 crore and INR 6.1 crore.

A major focus going forward includes disciplined capital allocation, with a net cash position of approximately INR 700 crore earmarked for organic growth and potential strategic M&A, especially in gaming studios. Management aims for EBITDA margins to exceed 20% in the near term. Specific growth drivers highlighted for FY '27 include new IP launches from both Fusebox and Curve, continued momentum in Kiddopia, and the expansion of offline gaming centers like Funky Monkey.

Question: "On Kiddopia, how do we think of the margin dip? Are there expectations that the stickiness from these acquired customers is going to deliver leverage in the coming quarters? Can you break down what is the ratio of monthly versus yearly subscriptions?"

Answer: "We've created centers of excellence for user acquisition and analytics, which are driving our growth. In Q2, our customer acquisition cost (CAC) was $37.5; in Q3, we reduced it to $35.8 while increasing ARPU to $7.45. The dip in margins is temporary as we're investing heavily in user acquisition, expecting revenues to grow in subsequent quarters. The LTV for Kiddopia usually spans two years, and we are optimistic about achieving profitable scale while adhering to strict CAC disciplines."

Question: "Can you explain any seasonality affecting margins in offline gaming? What are the benchmark margins for the offline business due to seasonality?"

Answer: "Funky Monkey centers have expanded rapidly, and typically break even in under a year. While Q3 margins spiked, the launch of new centers and a relaunch for Smaaash is expected to stabilize and improve margins in a couple of quarters. Generally, we project steady-state margins of about 35-40% for Funky Monkey and are focused on maintaining operational efficiency while scaling."

Question: "Can you shed light on the investments in nCore Games and Rusk Media? Are they just minority investments for now?"

Answer: "Our strategy involves investing in the Indian gaming ecosystem to tap into its growth potential. nCore, known for their FAU-G game, is performing well. These minority investments are strategic for building relationships within the local market. While current stakes are small, we may consider further engagement or larger stakes in the future, based on performance and market conditions."

Question: "Regarding NODWIN's turnaround, which IPs broke even this quarter? What led to this turnaround?"

Answer: "NODWIN's profitability is rooted in a few key IPs that have experienced solid growth. Past failures in Europe led to losses that masked our core business's strength. Now, with successful IPs like Comic Con and DreamHack, we've pivoted back to our core competencies. Streamlining costs and integrating new acquisitions have bolstered profitability as these IPs transition into stable revenue sources."

Question: "Can you elaborate on the seasonality effect observed on Fusebox? How does it impact user acquisition?"

Answer: "Seasonality does affect Fusebox due to its dependence on TV show IPs. During off-seasons, user acquisition becomes more costly. However, when shows air, we can acquire users efficiently, resulting in spikes in user acquisition at a lower cost. We see user acquisition aligning with show popularity, and we manage expenditures to remain profitable while capitalizing on these peaks."

Question: "What specific divisions or IPs will drive growth in FY '27? How will margins improve?"

Answer: "We anticipate growth from Fusebox games with multiple launches expected, alongside Kiddopia's strong recovery in user acquisition. Our offline gaming initiatives, especially Funky Monkey's expansion, and new game launches in Curve Gaming are also set to contribute. With net cash of INR 700 crore, we aim to invest strategically in growth and M&A to enhance our market position and optimize margins."

Question: "Can you provide financial guidance for the coming quarters, especially margins and overall expectations for growth?"

Answer: "While I can't provide specific numerical guidance at this stage, we aim for overall margins beyond 20% as we prioritize our core IP-driven gaming business. In the coming two to three quarters, you can expect to see growth aligning with our strategic investments and operational improvements. Our existing businesses are well-positioned for robust growth."