Nazara Technologies: Business Analysis π² by @AnishA_Moonka
The dedicated Venture Capitalists for gaming companies!
A Thread π§΅π (RT if beneficial)
The dedicated Venture Capitalists for gaming companies!
A Thread π§΅π (RT if beneficial)
1/ The gaming Industry is just 50 years old, $160-180B in size & still growing at 15-18% cagr (Mobile at 25% & PC+ console at 12-13%)
A megatrend that is entirely known & established.
A megatrend that is entirely known & established.
2/ The Indian gaming market has just touched $1B recently & still continues to grow at 30-35% cagr.
It is largely a mobile market with over 40cr gamers of which 20% (8cr) is paying. Both of these nos. are exp to expand with increasing mobile penetration & disposable incomes.
It is largely a mobile market with over 40cr gamers of which 20% (8cr) is paying. Both of these nos. are exp to expand with increasing mobile penetration & disposable incomes.
3/ Why do we need risk-takers like Nazara? Huge capital requirements for scaling up
βVideo game development is not getting any cheaper. Itβs a Capital-Intensive business and I donβt see that going away." ~Ben Feder, Take-Two (A video game holding co. that owns Rockstar games)
βVideo game development is not getting any cheaper. Itβs a Capital-Intensive business and I donβt see that going away." ~Ben Feder, Take-Two (A video game holding co. that owns Rockstar games)
4/ So, that is what Nazara does: provides risk capital to gaming industry founders once the product-market fit has been established (Img 1) & the aggregate experience at Team Nazara can provide them with wheels to grow.
More on their mindset behind acquisitions (Img 2)
More on their mindset behind acquisitions (Img 2)
5/ The vehicle is known as the 'Friends of Nazara' network
Two things work for them: they take the majority stake in the company (dilution means providing cash to co. they bought, cash & equity of Nazara to promoters who still continue to own some part in their biz) -Incentives
Two things work for them: they take the majority stake in the company (dilution means providing cash to co. they bought, cash & equity of Nazara to promoters who still continue to own some part in their biz) -Incentives
6/ Also, unlike the traditional VCs, Nazara leaves operational control of the day-2-day with the managementβs team (Not that I have verified this)
Many founders have thus joined them with time π
Few of them have scaled up multifold since: Nodwin, Kiddopia.
Many founders have thus joined them with time π
Few of them have scaled up multifold since: Nodwin, Kiddopia.
7/ Not everything that you will touch will turn into gold; there's this risk of zero to one & failures are intricately part of this business.
However, the key growth areas are 4 in number βοΈ & we will go through each of them in brief (as per their importance)
However, the key growth areas are 4 in number βοΈ & we will go through each of them in brief (as per their importance)
8/ Biz Segment no. 1: Esports (50% of their rev & the most stable rev segment)
Organized gaming competitions (both online and offline) wherein players compete individually or as a team in a competitive gaming environment with the goal of winning the tournament.
No. 1 in India
Organized gaming competitions (both online and offline) wherein players compete individually or as a team in a competitive gaming environment with the goal of winning the tournament.
No. 1 in India
9/ 2 major parts of this biz, 1st is Nodwin Gaming:
The E-sports supply chain & what role does Nodwin plays in itπ
Nodwin hosts leagues and tournaments on a regular basis wherein gamers contest each other for prize pools and spectators engage for entertainment.
The E-sports supply chain & what role does Nodwin plays in itπ
Nodwin hosts leagues and tournaments on a regular basis wherein gamers contest each other for prize pools and spectators engage for entertainment.
10/ This generates a lot of valuable IP for Nodwin which can be monetized later through OTTs (increasingly they are seeing that their customer love such content) once they reach scale.
Creating an ecosystem that can create athletes, coaches, game houses, teams, and brands.
Creating an ecosystem that can create athletes, coaches, game houses, teams, and brands.
11/ High Entry barrier biz where one has to invest for 3-4 years to create IPs to breakeven & afterward for the next 10+ years you continue to scale & milk those IPs.
+ High profitability margins once the business scales up multifold from here on.
+ High profitability margins once the business scales up multifold from here on.
12/ 2nd part of Esports biz is Sportskeeda which is a media platform where that provides the latest news about offline (Cricket & WWE) & online games (incl. Esports) to people.
Over 6 crore monthly active users (not the leader though); High operating leverage model.
Over 6 crore monthly active users (not the leader though); High operating leverage model.
13/ Business segment no. 2: Gamified Learning (Kiddopia app: 30% of rev)
Meant to bring an element of fun to learning by making it more interactive and engaging primarily catering to ages 2-7 & selling in the USA (now expanding to new countries)
Meant to bring an element of fun to learning by making it more interactive and engaging primarily catering to ages 2-7 & selling in the USA (now expanding to new countries)
14/ How does it work: parents can subscribe to their service after going through a free period phase of which 70% convert.
Can pay $8 monthly or $60 on a yearly basis: the average they get is $6.5 monthly
Over 3 lakh subs currently, more KPIs π
Can pay $8 monthly or $60 on a yearly basis: the average they get is $6.5 monthly
Over 3 lakh subs currently, more KPIs π
15/ However, the co. has its challenges which it is currently facing.
- Subs addition growth has stagnated
- Cost of acquisition has increased (thanks to Apple's new privacy policy)
- It is challenging to increase prices as competition in this space is immense π
- Subs addition growth has stagnated
- Cost of acquisition has increased (thanks to Apple's new privacy policy)
- It is challenging to increase prices as competition in this space is immense π
16/ With deteriorating economics (lower margins & lower rev growth), this segment needs a sharp pivot & even for Nazara: they need to look for the next acquisition that gives them a new kiddopia if they want to continue the growth part.
17/ Biz Segment No. 3: Freemium (5-10% of rev)
Model: Free to play games with in-app purchases
Small but potentially lucrative biz if they can use the IPs to create more successful games.
They own World Cricket Championship β the largest cricket simulation game on mobile.
Model: Free to play games with in-app purchases
Small but potentially lucrative biz if they can use the IPs to create more successful games.
They own World Cricket Championship β the largest cricket simulation game on mobile.
18/ However, the competition is extreme from non-India publishers.
Why do they win? They have a developer base who are highly skilled in what they do, India has never invested in this ecosystem and thus can't develop games like PubG.
Long Long way to go for Nazara here.
Why do they win? They have a developer base who are highly skilled in what they do, India has never invested in this ecosystem and thus can't develop games like PubG.
Long Long way to go for Nazara here.
19/ Finally, Biz segment No. 4: Real Money Gaming (5% of rev)
A skill-based online sports gaming with a chance to win their money back.
Brands: Halaplay & Qunami
Highly profitable business if they reach critical mass, See the financials of one of the leaders (H/T @nbalajiv)
A skill-based online sports gaming with a chance to win their money back.
Brands: Halaplay & Qunami
Highly profitable business if they reach critical mass, See the financials of one of the leaders (H/T @nbalajiv)
20/ Currently, a small segment of them which is just aspiring to break even at best.
The regulatory stance (state by state) is developing & not clear, so that's a big risk.
The regulatory stance (state by state) is developing & not clear, so that's a big risk.
21/ Finally, just one other business segment remains which is Telco Subscription where they Partner with telecom operators to provide a Bouquet of mobile games for mass users, as a value add service.
This is a cash cow that is degrowing, & should reduce to zero with time.
This is a cash cow that is degrowing, & should reduce to zero with time.
22/ Strategy for Nazara: Identify areas that require local expertise (as competing on a global scale is tough at this point) & become leaders in that, normally they are high growth areas.
βTo scale without margin maximization & sacrificing on core principles of unit economics."
βTo scale without margin maximization & sacrificing on core principles of unit economics."
23/ Financials: Not much to track other than rev growth (can go into KPIs of individual businesses) & cash on books (~300-350crs as of the date)
An option/startup type of bet & sales must continue to increase at high rates if they want to maintain their premium vals.
An option/startup type of bet & sales must continue to increase at high rates if they want to maintain their premium vals.
24/ Let's come onto the risks now
a. More & more VCs (with better branding & deeper pockets) entering the gaming investments landscape. While Nodwin & Kiddopia played out really well, how many other low-hanging fruits would come into their hands? (FON network does hold promise)
a. More & more VCs (with better branding & deeper pockets) entering the gaming investments landscape. While Nodwin & Kiddopia played out really well, how many other low-hanging fruits would come into their hands? (FON network does hold promise)
25/ b. Impairments of investments.
c. Part of their biz is dependent on their stock price doing well; as they use it as their currency & to incentivize other stakeholders. A correction that is not in their hands could be an issue.
d. Low promoter holding: 19% only.
c. Part of their biz is dependent on their stock price doing well; as they use it as their currency & to incentivize other stakeholders. A correction that is not in their hands could be an issue.
d. Low promoter holding: 19% only.
26/ e. Dependent on bigger platforms (like Android, IOS) for their bread & butter; for example, a change in Appleβs privacy policy. Some business segments have fragile business models with a high risk of 'rug pull'.
f. Marketing and advertising spend going higher due to rivals.
f. Marketing and advertising spend going higher due to rivals.
27/ Finally, the management.
On the right: Mr. Nitish who Started Nazara in 2000 & faced over 10 years of struggle phase
On the left: Mr. Manish joined Nazara in 2015, & was the previous CEO of Reliance Games
Both bring a ton of passion & exp. to the table.
On the right: Mr. Nitish who Started Nazara in 2000 & faced over 10 years of struggle phase
On the left: Mr. Manish joined Nazara in 2015, & was the previous CEO of Reliance Games
Both bring a ton of passion & exp. to the table.
28/ Conclusion β°
Nazara is all about optionalities (High risk, High Return) in the Indian gaming landscape & should be treated like one if one has done their research & desires to buy (should only allocate a small part of their portfolio)
End (Thread will be updated with time)
Nazara is all about optionalities (High risk, High Return) in the Indian gaming landscape & should be treated like one if one has done their research & desires to buy (should only allocate a small part of their portfolio)
End (Thread will be updated with time)
29/ On their recent foray (interesting optionality) where Nazara will invest $2.5m in BITKRAFT Ventures (a US-based gaming fund: early to mid-stage)
- To scout more investment candidates & create a deal flow in western countries
- Also, allows foray into Blockchain/web3 startups.
- To scout more investment candidates & create a deal flow in western countries
- Also, allows foray into Blockchain/web3 startups.
30/ A good thread on the interpretation of the optionalities built-in Nazara Tech (H/T @CapitalSapling)
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