February 03, 2021

Sandip Ginodia's IPO - Listing Update : Analyzing Nazara Tech's DRHP

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A summary of Nazara’s IPO prospectus: Risks, regulations, areas of operation, strategy

Stock Deep Dive #3


Gaming and sports media company Nazara Technologies Ltd., last week filed its draft red herring prospectus with the Securities and Exchange Board of India (SEBI), after first receiving approval from the markets regulator to go public in 2018.
Shares of Nazara Technologies are available with us in the range of Rs 1025-1055/share.
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Lets dive in to the business model, competition, industry overview and financials -
Revenue Sources (Sector & Geography)
revenues mainly come from subscription fees from gamified early learning content, and from e-sports business, cumulatively accounting for 71% and 42% of operational revenue in FY20 and H1FY21.
Business segment: Revenue and % of revenue in H1FY21 | FY20
  • Gamified early learning: ₹787 million, 39% | ₹191 million, 8%
  • eSports: ₹637 million, 32% | ₹842 million, 34%
  • Telecom subscriptions: ₹428 million, 21% | ₹818 million, 33%
  • Freemium: ₹90 million, 4.5% | ₹198 million, 8%
  • Real money gaming: ₹63 million, 3% | ₹426 million, 17%
Geographic: Revenue and % of revenue in H1FY21 | FY20
  • North America: ₹835 million, 42% | ₹302 million, 12%
  • India: ₹825 million, 41% | ₹1.4 billion, 59%
  • Middle East: ₹118 million, 6% | ₹180 million, 7%
  • Africa: ₹63 million, 3% | ₹206 million, 8%
  • Asia Pacific: ₹164 million, 8% | ₹327 million, 13%
Subsidiary Analysis
I. Gamified early learning: Paper Boat Apps Pvt. Ltd - which operates subscription app Kiddopia, in January 2020. Kiddopia caters to children aged between 2-6 years in North America. Paid subscribers increased to over 290,000 in October 2020 from around 115,00 when it acquired the company. The app has 5 million downloads and 300,000 active subscribers; it saw 300% revenue growth since its initial funding.
Kiddopia has the advantage of strong unit economics with a high LTV and nine month recovery of CACs.
II. eSports: Nodwin Gaming   Nodwin has exclusive partnerships with ESL to manage gaming events such as ESL India Premiership and KO Fight Nights; it also works with Valve Corporation. Key growth drivers are event and content IPs, exclusive streaming and ownership rights, on-demand esports content, media rights licensing, and brand partnerships.
Besides this, Nazara also acquired Absolute Sports Pvt. Ltd., which operates sports news website Sportskeeda, in 2019. Sportskeeda monthly active users stand at:
17.79 million, with 47.32 million visits per month in FY20
29.43 million, with 58.27 million visits per month in H1FY21
III. Freemium mobile gaming - Next Wave Multimedia Operates several free-t0-play sports simulation and children’s games based on cricket, carrom, table tennis, gaming. This includes the World Cricket Championship (WCC), Bat Attack Cricket, and CarommClash franchises.
In-game time spent per day per user: 39 mins in FY20 and 40 mins in H1FY21
In game time spent in WCC per day per user: 45 mins in FY20 and 46 mins in H1FY21
WCC: 100,000 installs per day in H1FY21 (April-September 2020), 100 million installs in tota
IV. Real money gaming: Halaplay Technologies and Sports Unity - real money fantasy gaming company (which operates real money quiz app Qunami).
Risks and Regulatory Challenges
1. Dependence on telecom subscription business for a substantial portion of profits: Revenue from the telco subscription business accounted for 33% and 21% of the company’s FY20 and H1FY21 revenue respectively. This can be negatively impacted with any changes in payment collection models by telecom partners, to telecom regulations, or the increasing popularity of freemium mobile games, or a reduction in payment barriers. Over a thousand Nazara games are offered via telco subscriptions.
2. Risks in eSports: Nazara enters into arrangements and partnerships with global gaming publishers and league owners and brands; for instance, it has an exclusive license partnership with ESL Gaming for hosting gaming events such as ESL India Premiership; it also uses technology platform Toornament to host such tournaments.
E-sports revenue primarily comes from ad investor sales, media rights licensing and sponsorships. Any adverse event impacting creation and development of content, titles, events can lead to the prize pool being offered impacted, impacting brand value and popularity, as well as overall revenues and operations.
White label e-sports events are seasonal in nature, with a significant number of events being held in June-December every year.
3. Revenues from freemium games depend on “mindshare” in cricket simulation games: Cricket simulation games such as Next Wave’s WCC and its franchises are a key contributor to freemium mobile gaming revenues. WCC accounted for 76% and 82% of total MAUs for the freemium business for FY20 and H1FY21.
4. Regulatory risks abroad around children: Nazara’s gamified early learning apps are subject to US Federal Trades Commission rules such as the Children’s Online Privacy Protection Rule (COPPA), which applies to commercial websites and online services catering to children aged below 13 years.
5. Proposed privacy law in India: The anticipated enactment of the Personal Data Protection Bill, 2019, “may incur increased compliances and costs, which may also require significant management time and other resources, and any failure to comply may adversely affect our business, cash flows, results of operations and prospects”.
6. Regulation of digital news and content in India: The company flagged the Indian government’s recent move, in November 2020, to bring digital and online media under the regulatory ambit of the Ministry of Information & Broadcasting.
Business strategy and plans

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